Corporate governance - Aldermore · 2017-04-13 · progress with the search and look forward to announcing a replacement in due course. Further information about the search process

Corporate governance

Chairman’s introduction 40

Board of Directors 42

Executive Committee 44

Corporate governance structure 45

The Board - roles and processes 46

Relations with shareholders 58

Corporate Governance and Nomination Committee Report 60

Audit Committee Report 62

Risk Committee Report 70

Remuneration Report 74

Directors' Report 100

39 Strategic report Corporate governance Risk management Financial statements Appendices

2016 has been a year of consolidation and evolution as we have strived to build

on a strong governance framework that we established in preparation

for our listing.”

UK Corporate Governance Code 2014 (“the Code”) – statement of compliance

The Board is committed to the highest standards of corporate governance and confirms that, during the year under review, the Group has complied with the requirements of the Code, which sets out principles relating to the good governance of companies. Following the resignation of Glyn Jones as Chairman with effect from 6 February 2017, and the subsequent appointment of Danuta Gray as Interim Chairman, Danuta Gray is currently not discharging her role as Senior Independent Director. These responsibilities will be resumed on appointment of a new Chairman.

The Code is available at www.frc.org.uk

This corporate governance report describes how the Board has applied the principles of the Code and provides a clear and comprehensive description of the Group’s governance arrangements.

Danuta Gray,Interim Chairman

40 Aldermore Group PLC Annual Report and Accounts 2016


Chairman’s introduction

Dear ShareholderAs your Interim Chairman, I am delighted to introduce our corporate governance report for the year ended 31 December 2016.

Firstly, as I highlighted in my statement on page 7, on behalf of the Board I would like to offer our sincere thanks to Glyn Jones who decided to step down from the Board on 6 February 2017 to enable him to focus on his new role as Chairman of Old Mutual Wealth. Since joining the Group in March 2014, Glyn chaired the Board through a significant period of growth and change for the Company as it successfully completed its IPO in March 2015. Prior to the Company’s listing, Glyn played a pivotal role in setting the foundations for our current governance framework, which has provided a robust environment for the Group to deliver on its strategic and financial objectives within its risk appetite. He has left a strong, experienced and dedicated Board of Directors to lead the Group through the next stage of its development, and we remain committed to building on these foundations. An external agency has been appointed to help with the process of selecting Glyn’s successor which is being managed through the Corporate Governance and Nomination Committee in line with our agreed Chairman Succession Framework. We are making good progress with the search and look forward to announcing a replacement in due course. Further information about the search process is set out in the Corporate Governance and Nomination Committee Report on page 60.

In terms of other Board changes, we welcomed Chris Patrick as a Non-Executive Director in November 2016 when he replaced Neil Cochrane as the representative of our Principal Shareholders. Neil stepped down as a

Director in October 2016 subsequent to him resigning from AnaCap. Peter Cartwright also resigned in April 2016 as a shareholder-representative Director due to time commitments. We would like to extend our gratitude to both of them for their significant contribution during their respective tenures. The Principal Shareholders retain the right to a second seat on the Board but currently have one representative only.

Following the IPO, 2016 has been a year of consolidation and evolution as we have strived to build on the strong governance framework that we established in preparation for our listing. The following pages describe how we comply with the main principles of the Code, how the Board operates, and the key areas of focus for both the Board and its Committees during the year. Whilst it is difficult to narrow down our activities across the year to a few highlights, the strengthening of our Risk Management Framework overseen by the Risk Committee; the broadening of the financial performance measures within the balanced scorecard for the annual bonus scheme, such that they are more aligned to our KPIs; and the comprehensive tender process for the external auditor led by the Audit Committee, are all examples of areas where our Committees have supported the Board in developing our governance arrangements.

The Board recognises that one of the keys to the Group’s long-term success is the development of a healthy corporate culture. As we continue to execute on our strategy, the Group’s size and complexity will continue to increase, and the Board is cognisant that the Group’s culture has to evolve alongside this. Culture starts at the top, and the Board and the Executive Committee together have to drive the values and behaviours that support our

brand. During the year, the Executive Committee initiated a new programme of ‘Big Conversation’ discussions with our employees regarding the kind of company they want Aldermore to be. A dashboard of cultural metrics has also been developed, and the Board will continue to receive regular updates on these initiatives as they progress.

The Board strongly supports the principle of diversity, of which gender is one important aspect, and we were therefore delighted to support the Group signing up to the Women in Finance Charter to promote wider female representation in senior management roles in finance. The Board has committed to a target of 30% for our female senior managers by 2020, and to maintaining our gender split at around 50/50. In respect of possible targets at Board level, we have not established a measurable target for gender representation but remain committed to increasing all aspects of diversity. As set out in our Board Diversity Policy, Director appointments are subject to a formal, rigorous and transparent procedure and are made on merit against a defined job specification and criteria. We will continue to monitor whether it is appropriate to set a Board target in the future taking into account developments arising from the Hampton – Alexander Review and seeking the views of the new Chairman when appointed.


Danuta Gray,Interim Chairman

Chairman Executive Directors

Non-Executive Directors

Danuta GrayInterim Chairman

Appointed: September 2014Board Committee membership:

R

Relevant skills, strengths and experience:Danuta brings significant leadership experience to the Board, having spent nine years as CEO of Telefónica O2 in Ireland. Her career in telecommunications spans 26 years, during which time she held numerous senior roles at BT Group PLC, gaining experience in marketing, customer service, communications, technology and sales, and leading and implementing change. She has also served as a Non-Executive Director of Irish Life & Permanent PLC and Aer Lingus Group PLC.Principal external appointments:• Non-Executive Director of Direct Line

Insurance Group PLC• Non-Executive Director and Chairman of the

Remuneration Committee of Old Mutual PLC• Non-Executive Director and Chairman of the

Remuneration Committee of PageGroup PLC• Member of the Defence Board of the Ministry

of Defence

Phillip Monks OBEChief Executive Officer

Appointed: May 2009

Relevant skills, strengths and experience:Phillip is the founding CEO of Aldermore and has a long-standing track record in championing small and medium-sized businesses and British economic growth. His banking career spans more than three decades, which includes establishing and serving as CEO of Europe Arab Bank PLC and over 20 years at Barclays PLC where he held a variety of senior corporate and private banking roles, including CEO of Gerrard Investment Management Limited, Managing Director of Barclays Corporate Banking in London, the Midlands and South East, and Head of Barclays Private Bank in Geneva. In June 2016, Phillip was awarded an OBE for his services to banking.Principal external appointments:• Member of the FCA Smaller Business

Practitioner Panel

Chris PatrickNon-Executive Director

Appointed: November 2016Board Committee membership: C R

Relevant skills, strengths and experience:Chris brings over 25 years of financial services experience to the Board. He has been a Partner at AnaCap Financial Partners LLP since 2009 and heads the Risk and Liability Management Team, which assists the AnaCap Funds in funding, liquidity management, and monitoring key credit and market risks relating to their portfolio investments. Prior to joining AnaCap, Chris spent 10 years at Lehman Brothers International and prior to that, he held roles at Credit Suisse First Boston, Nomura International and Goldman Sachs.Principal external appointments:• Partner and Head of Risk and Liability

Management at AnaCap Financial Partners LLP

• Member of the Supervisory Board of Credoma a.s.

• Director of Equa Holdings Limited

Robert SharpeIndependent Non-Executive Director

Appointed: June 2015Board Committee membership: A R

Relevant skills, strengths and experience:Robert has over 35 years’ experience in the banking sector, with a strong focus on mortgage lending. His previous executive roles include Group Operations Director and then CEO of Portman Building Society, where he led the merger with Nationwide Building Society, and CEO, Mortgages at Bank of Ireland (UK) PLC. In 2008, he joined West Bromwich Building Society as CEO to chart and implement its rescue plan. Robert is an experienced Non-Executive Director with previous appointments including United Arab Bank PJSC, National Bank of Oman SAOG and George Wimpey PLC.Principal external appointments:• Chairman of Al Rayan Bank PLC • Chairman of Bank of Ireland (UK) PLC• Executive Chairman of Stonehaven UK Limited• Chairman of Honeycomb Investment

Trust PLC

James MackChief Financial Officer

Appointed: September 20131

Relevant skills, strengths and experience:James brings significant financial experience to the Board, having spent six years at Skipton Building Society in capital markets, finance and audit, where he was instrumental in leading the merger with Scarborough Building Society. James began his career with KPMG LLP where he spent 11 years in the firm’s financial services audit practice and he has also been Acting CFO of the Co-operative Banking Group Limited.Principal external appointments:• None

1 Appointed as a Director of Aldermore Bank PLC in June 2013.

John HitchinsIndependent Non-Executive Director

Appointed: May 2014Board Committee membership:

R

Relevant skills, strengths and experience:John has extensive financial and audit experience having previously been a senior banking partner at PricewaterhouseCoopers LLP, specialising in bank auditing and advisory services for clients including Lloyds Banking Group PLC, the Bank of England, Bank of Ireland (UK) PLC, Barclays PLC and JP Morgan Chase. From 2001 to 2010, John was PwC’s banking industry leader and from 2010 until his retirement led the PwC network’s global IFRS technical group. John has also carried out a wide variety of advisory work for other banks and on behalf of the regulators covering corporate governance, high-level controls and other regulatory issues.Principal external appointments:• Trustee and member of the Governing Council

of the Centre for the Study of Financial Innovation, a not-for-profit City-based think tank

• Deputy Chairman of the Financial Reporting Review Panel

C*

A*



Board of Directors

Non-Executive Directors continued

Peter ShawIndependent Non-Executive Director

Appointed: September 2014Board Committee membership: A C R

Relevant skills, strengths and experience:Peter brings over 30 years’ financial services experience having spent most of his career at The Royal Bank of Scotland PLC and National Westminster Bank PLC where he worked across a number of business areas including retail, SME, private banking, corporate banking, HR and risk. Peter spent many years in senior risk management roles including COO of the risk function at Group Head Office in the UK and CRO for various group businesses within RBS NatWest. In addition, Peter served as Interim CRO at the Co-operative Banking Group Limited.Principal external appointments:• Non-Executive Director and Chairman of the

Risk Committee of Bank of Ireland (UK) PLC• Non-Executive Director of Willis Limited

Chris StamperIndependent Non-Executive Director

Appointed: February 20142

Board Committee membership: A R

Relevant skills, strengths and experience:Chris has 35 years’ experience in the asset finance arena, most latterly as Director and CEO of ING Lease (UK) Limited. He is a founding Governor of the Leasing Foundation and was Director of the Finance and Leasing Association and a former Chairman of their Asset Finance Division. Prior to this, Chris held senior management roles at Abbey National PLC, where he was responsible for five business units focused on the SME market, and was the Managing Director of Lombard Sales Finance where he spent 21 years.Principal external appointments:• None

2 Appointed as a Director of Aldermore Bank PLC in May 2013.

Rachel SpencerCompany Secretary

Appointed: February 2015

Relevant experience:Rachel has over 25 years’ listed company experience. She was the Deputy Company Secretary at Invensys PLC from 1999 until 2014 on the conclusion of its acquisition by Schneider Electric SA. She was previously with BTR PLC having joined as a trainee chartered secretary. She is a Fellow of the Institute of Chartered Secretaries and Administrators.Responsibilities:Rachel acts as secretary to the Board and its Committees and is accountable to the Board (through the Chairman) on all corporate governance matters.

Board membership changes during the year and to the date of this report:

• Peter Cartwright resigned as a Non-Executive Director with effect from 18 April 2016.

• Neil Cochrane resigned as a Non-Executive Director with effect from 14 October 2016.

• Chris Patrick was appointed as a Non-Executive Director on 21 November 2016.

• Glyn Jones resigned as Chairman with effect from 6 February 2017.

• Danuta Gray was appointed as Interim Chairman with effect from 7 February 2017. Danuta held the role of Senior Independent Director throughout 2016 and will resume this position on the appointment of a new Chairman.

R*

Key

A Member of the Audit Committee

C Member of the Corporate Governance and Nomination Committee

R Member of the Remuneration Committee

R Member of the Risk Committee

Denotes Committee Chair*

Company Secretary


Cathy TurnerIndependent Non-Executive Director

Appointed: May 2014Board Committee membership: C

Relevant skills, strengths and experience:Cathy has held a number of banking roles during her career, including Chief Administrative Officer at Lloyds Banking Group PLC and Group HR Director at Barclays PLC, where she was responsible for HR, strategy, corporate affairs, brand and marketing. She was also Director of Investor Relations at Barclays for four years. Formerly, Cathy worked in consultancy with Deloitte & Touche LLP, Ernst & Young LLP and Watson Wyatt Worldwide, Inc managing client relationships with a particular focus on compensation and benefits. Principal external appointments:• Non-Executive Director and Chairman of the

Remuneration Committee of Countrywide PLC• Non-Executive Director and Chairman of

the Remuneration Committee of Old Mutual Wealth Management Limited

• Partner of Manchester Square Partners LLP • Trustee of the Gurkha Welfare Trust• Honorary Fellow of UNICEF UK

R*

Dana CuffeChief Operating Officer

Joined the Group: May 2016Relevant skills, strengths and experience:Dana has over 30 years’ experience in financial services and, prior to joining Aldermore, served as Senior Vice President and Chief Information Officer for RenaissanceRe Holdings Limited in Bermuda and was Head of Operations in Ireland. Prior to that, he spent three years as Chief Information Officer of Egg PLC, taking the organisation through an IPO and growing the customer base to over three million. Dana has also held senior IT positions in the UK, US and Australia with Credit Suisse First Boston, Global Asset Management, Citibank N.A. and Bank of America.Responsibilities:Dana is responsible for Technology, Group Services and Operations, Strategy, Strategic Propositions, Marketing and Digital.

Carl D’AmmassaGroup Managing Director – Business Finance

Joined the Group: October 2013Relevant skills, strengths and experience:Carl has spent a number of years in the asset finance industry. Having started his financial services career at GE Capital, he held various financial, operational and general management positions in GE’s Equipment Finance, Equipment Services and Restructuring divisions, including the post of CEO of the vehicle rental, plant hire and key leasing businesses. Prior to joining Aldermore, he was the Managing Director of Hitachi Capital Business Finance. Throughout his career, Carl has gained experience in challenging turnaround and transformational situations leading significant sales, operational and process improvements.Responsibilities:Carl is responsible for the management of the Group’s lending activity through the Business Finance Division, which comprises the Asset Finance and Invoice Finance business lines.

Rob DivallGroup HR Director

Joined the Group: September 2016Relevant skills, strengths and experience:Rob joined Aldermore from the Board of AdviserPlus Business Solutions Limited, a leading provider of HR managed services, where he led strategy and product development and played a key commercial role in the growth of the company through to its eventual acquisition goal. Prior to this, Rob held a variety of HR leadership positions in his eight years with Lloyds Banking Group PLC. Before Lloyds, he worked with Accenture PLC leading change programmes within the HR outsourcing division, having started the first decade of his career in retail where he held a number of senior HR and commercial roles in The Big Food Group PLC and Boots the Chemists Limited.Responsibilities:Rob is responsible for the Group HR function and the delivery of the people elements of the Group’s strategy and performance.

Charles Haresnape1

Group Managing Director – Mortgages

Joined the Group: January 2011Relevant skills, strengths and experience:Charles has a deep knowledge of the mortgages industry, having worked for a number of household names in the banking and building society sectors, including Nationwide Building Society and HBOS PLC. Charles was Senior Executive, Mortgage Sales and Acquisitions at Nationwide Building Society and Managing Director, Intermediary Mortgages at HBOS PLC. In addition, he has previously held roles within The Royal Bank of Scotland Group PLC where he was responsible for intermediary mortgage lending, and NatWest’s branch mortgage sales force. Prior to joining Aldermore, Charles was Group Mortgage Services Director at Connells Limited, one of the UK’s largest estate agency groups.Responsibilities:Charles is responsible for the management of the Mortgages Division, which comprises Residential Mortgages, Commercial Mortgages and Buy-to-Let business lines.

1 Charles is leaving the Group in 2017. A search is underway for his replacement.

Christine PalmerChief Risk Officer

Joined the Group: April 2016Relevant skills, strengths and experience:Christine has over 28 years’ experience in risk management, corporate and commercial banking, having held roles at ING Bank N.V., where she spent eight years across London and Amsterdam, Ernst & Young LLP and The Royal Bank of Scotland Group PLC. Her career at RBS spanned almost 14 years, during which time she held a number of senior positions in the Risk function including divisional chief risk officer and senior credit risk roles. She was most recently Global Head of Operational Risk and Director of Risk, Services.Responsibilities:Christine is responsible for Risk across the Group which includes credit, operational, compliance, conduct and financial crime risk, as well as capital and liquidity risks.

Phillip Monks, Chief Executive Officer, and James Mack, Chief Financial Officer, are both members of the Group’s Executive Committee. Their biographies can be found on page 42.

Executive Committee responsibilities

The role of the Executive Committee is to assist the Chief Executive Officer in the performance of his duties relating to the day-to-day operation of the Group, including the:

• development and implementation of strategy, operational plans, policies, procedures and budgets

• monitoring of operating and financial performance

• prioritisation and allocation of resources

• monitoring of competitive forces in each area of operation

• design and embedding of the Risk Management Framework

• monitoring of adherence to risk appetite statements

• assessment and control of principal risks within the Group



Executive Committee

Board and Committee structureThe Board has delegated a number of its responsibilities to Board Committees, which utilise the expertise and experience of their members to examine subjects in detail and make recommendations to the Board where required. This delegation allows the Board to focus more of its time on strategic and other broader matters. The Chairs of the Board Committees provide the Board with a verbal update on matters discussed at each meeting, and Board Committee minutes are made available to the whole Board through a secure online system.

In addition to the Board Committees noted on the diagram below, the Board has established two further standing committees:

• The General Purpose Committee, comprising the two Executive Directors, for the purpose of approving routine business matters such as powers of attorney, changes to bank mandates and the execution of agreements which have already been approved in principle by the Board.

• The Disclosure Committee, comprising the two Executive Directors and the General Counsel, for the purpose of maintaining procedures, systems and controls for the identification and disclosure of market and price sensitive information.

All Board Committees have written terms of reference (available on the Company's investor website) which set out their authority, and the minutes of all meetings of these Committees are made available to the Board.

Responsibility for the day-to-day management of the Group is delegated to the CEO, who has established a structure of two executive commit-tees, supported by a number of sub-committees, which oversee the execution of the strategy agreed by the Board, and performance and risk issues. The executive committees and their sub-committees each have their own terms of reference.

Aldermore Bank PLC (“the Bank”)The Bank is a wholly owned operating subsidiary of the Company and it transacts the Group’s banking business. It is authorised by the PRA and regulated by the FCA and the PRA. The Board of the Bank mirrors that of the Company and comprises the same Directors. The Bank Board holds separate Board meetings immediately following the meetings of the Company’s Board.

CEO

Executive Risk Committee

Corporate Governance and

Nomination Committee

Audit Committee

Risk Committee

Remuneration Committee

Governance structure and delegated authorities

Aldermore Group PLC Board

Aldermore Bank PLC Board

Executive Committee


Corporate governance structure

The BoardThe Board is collectively responsible to shareholders for promoting the long-term success of the Group by directing and supervising the Group’s affairs to create sustainable shareholder value. In setting the Group’s strategy and related risk appetite, it also takes account of its obligations to other stakeholders including customers, employees, suppliers and the community in which it operates, as well as the regulatory obligations of the Bank, its principal banking subsidiary.

The Chairman leads the Board in its role to provide executive management with entrepreneurial direction, whilst the day-to-day management of the Group and operational matters are delegated to the CEO. The separation of duties between the Chairman and CEO is formally documented. The CEO is supported by his senior management team (the “Executive Committee”). Further details about the Executive Committee can be found on page 44, whilst further information about the role and responsibilities of each Board member can be found on the next page.

The Board’s principal duties are set out in a formal schedule of matters reserved for its decision, as summarised on page 48. This schedule is reviewed annually and is available at www.investors.aldermore.co.uk

The Group Corporate Governance Framework, which is reviewed annually by the Board, sets out in detail the way the Group is governed.

1 Danuta Gray acted as Senior Independent Director throughout 2016. She was appointed as Interim Chairman with effect from 7 February 2017 pending the appointment of a new Chairman.

James MackChief Financial Officer

Cathy TurnerIndependent

Non-Executive Director

Danuta Gray1

Interim Chairman

Phillip MonksChief Executive Officer

Chris StamperIndependent


Chris PatrickNon-Executive

Director

John HitchinsIndependent


Robert SharpeIndependent


Peter ShawIndependent


Well-organised meetings

Common vision

Diversity of Board

membership

No dominant personalities

No "no-go" areas

High ethical standards

Open and transparent

debate

Clear understanding

of the role of the Board

Boardroom culture and

dynamic

Board structure (as at 1 March 2017)

Non-Executive Director tenure (as at 1 March 2017)

Gender split of Directors (as at 1 March 2017)

%

Interim Chairman 11

Executive Directors 22Independent Non-Executive Directors

56


11

%

0–1 year 14

1–2 years 14

2–3 years 58

3–4 years 14

%

Female 22

Male 78



The Board – roles and processes

Chairman • Leads the Board and ensures its effectiveness in all areas• Sets the Board’s agenda, with support from the CEO and the Company Secretary• Promotes the highest standards of corporate governance throughout the Group• Facilitates the effective contribution of Non-Executive Directors and a constructive

relationship between Executive Directors and Non-Executive Directors• Ensures that Directors receive timely and relevant information to support sound

decision-making• Responsible for induction, training and development of Directors• Leads the development of the Group’s culture• Ensures effective communication with shareholders

Chief Executive Officer

• Responsible for the day-to-day management of the Group within the delegated authority and risk appetite approved by the Board

• Recommends the Group’s strategy and leads the executive management team in the execution of the strategy approved by the Board

• Ensures the Group’s culture is embedded in the business• Leads the relationship with institutional shareholders and ensures that timely and

accurate information is disclosed to the market as appropriate

Chief Financial Officer

• Manages the Group’s financial affairs and supports the CEO in the management of the business

• Specifically manages statutory, monthly performance and regulatory reporting; and balance sheet and liquidity management

Senior Independent Director

• Acts as a sounding board for other Non-Executive Directors and the Chairman• Chairs the Corporate Governance and Nomination Committee when it is considering

succession to the role of Chairman of the Board• Conducts the Chairman’s annual performance evaluation, feeding in views from the

Non-Executive Directors• Attends meetings with major shareholders to understand their key issues and

concerns, and is available to shareholders if they have concerns which contact through the normal channels has failed to resolve or is inappropriate

Non-Executive Directors1

• Provide independent and constructive challenge of the Executive Directors, including to help develop proposals on strategy

• Scrutinise the delivery of the strategy within the risk and control framework set by the Board

• Satisfy themselves on the integrity of financial reporting and the robustness of systems and controls

• Determine Executive Director remuneration

Company Secretary

• Provides key support and acts as a first point of contact for the Chairman and Non-Executive Directors

• Facilitates effective information flows between the Board and its Committees, and between executive management and the Board

• Keeps the Board updated on developments in corporate governance• Facilitates induction of new Non-Executive Directors and training• Acts as Secretary to the Board and Board Committees

1 This includes one Non-Executive Director proposed by the Principal Shareholders under the Relationship Agreement.


Board meetingsThe Board held nine scheduled Board meetings, one strategy workshop and four additional ad hoc Board meetings in 2016. Two of the ad hoc meetings were called in order to analyse the Q3 forecast in greater detail in light of the uncertain economic outlook following the UK vote to leave the European Union, whilst other matters discussed at the ad hoc meetings included a substantial new contract and the appointment of the new external auditor following a tender process.

Attendance at scheduled Board and Committee meetings is set out below. There are occasions when a Director may be unable to participate in a meeting and, if this is the case, they are encouraged to provide comments to the Chairman on key items of business in advance of the relevant meeting, so that their views can be shared at the meeting and their opinions taken into account during discussions.

In addition to the meeting programme, Directors meet informally during the year enabling them to discuss sensitive and key matters in more depth.

Both the Board and its Committees have a rolling annual programme which aligns to the schedule of matters reserved for the Board and the terms of reference of each Committee. The agendas and time allocation for Board meetings are put together by the Chairman, assisted by the CEO and Company Secretary, based on the annual programme, actions arising from previous meetings and key business priorities. A similar process is followed with the Chair of each Board Committee. The Board and Committee agendas include a closed session at the end of meetings from time to time to enable the Chairman/Committee Chair to meet privately with the Non-Executive Directors without management present.

The Board monitors the performance of the Group against the approved strategy and annual business plan, and within the agreed risk appetite, through the following regular reports:

• An update from the CEO on market, customer and strategic developments.

• A business performance report which gives a holistic view of the Group’s performance, and includes:

– a report from the CFO on the financial results of the Group as a whole, as well as an investor relations update and review of various prudential regulatory matters;

– a briefing from the Chief Risk Officer on key emerging risks, risk appetite and regulatory developments;

– an update from the Chief Operating Officer on IT, operational and transformation matters, and strategic change projects; and

– reports from the Managing Directors of the businesses on the business performance and related key issues, and an overview of the competitive landscape.

2016 Board and Committee attendance at scheduled meetings

Attendance Board

Corporate Governance and

Nomination Committee

Audit Committee

Risk Committee

Remuneration Committee

Danuta Gray 9/9 2/2 – – 4/4

Glyn Jones 9/9 2/2 – – 4/4

Phillip Monks 9/9 – – – –

James Mack 8/94 – – – –

Peter Cartwright1 3/3 1/1 – 2/25 –

Neil Cochrane2 6/7 0/06 – 3/36 –

John Hitchins 9/9 – 7/7 7/7 –

Chris Patrick3 1/1 0/0 – 0/0 –

Robert Sharpe 9/9 – 7/7 7/7 –

Peter Shaw 9/9 2/2 7/7 7/7 4/4

Chris Stamper 8/97 – 7/7 6/77 –

Cathy Turner 9/9 2/2 – – 4/41 Resigned on 18 April 2016. 2 Resigned on 14 October 2016. 3 Appointed on 21 November 2016. 4 Unable

to attend as representing the CEO at a PRA seminar. 5 Includes meetings attended by Neil Cochrane in his capacity as alternate to Peter Cartwright. 6 Appointed as a member on 10 May 2016, and ceased to be a member on 14 October 2016. 7 Absence due to long-standing holiday arrangements.

Key matters reserved for the Board

• Strategy

• Corporate and capital structure

• Financial reporting and controls

• Internal controls and risk management

• Material contracts

• Board membership and other appointments

• Remuneration policy

• Corporate governance matters



The Board – roles and processescontinued

Strategy sessions The Board is responsible for establishing the Group’s strategy and plays a key role in challenging management in developing the strategic plan and objectives.

Two Board strategy workshops are generally held every year where the CEO, with members of his Executive Committee, present their views of the market and proposed plans, including new initiatives, to be probed and tested by the Non-Executive Directors. The range of experience and expertise that the Non-Executive Directors are able to bring to the debate, along with their independent oversight, is key to building a sustainable strategy. The focus of discussions is not only on how the strategy should evolve, but also on ensuring that the Group has the appropriate resources, skills and competencies to deliver the chosen strategy.

However, given the rapidly changing market and regulatory environment in which the Group operates, the strategy has to be subject to continuous review and, as such, the executive management provides the Board with regular updates on key strategic initiatives as they progress.

Business performance

• Regular reports from the CEO, CFO and other members of the executive team (as detailed on page 48)

• Deep-dive into the Group’s funding strategy

Financial matters and investor relations

• Publicly released financial results, including going concern and viability statements and dividend policy

• Quarterly forecasts

• 2017 annual budget

• Issuance of Tier 2 Loan Notes

Governance • Changes to the Board and composition of the Board Committees

• Annual Report and Accounts and Notice of AGM, as well as related matters such as the annual reappointment of both the Directors and the external auditor and the Directors' Remuneration Policy

• Outcome of the annual review of the effectiveness of the Board and progress against key actions

• Changes to the Group Corporate Governance Framework

• Annual review of disclosure controls and procedures

• Appointment of the new external auditor with effect from the 2017 AGM

• 2017 annual programme

IT and operations

• New contracts outside of the CEO's delegated authority

• Property strategy and an amendment to a property lease

• Key insurance renewals, including Cyber and Directors’ and Officers'

Regulatory matters

• Updates on the implementation of new regulatory initiatives including the Senior Managers and Certification Regime, EU Market Abuse Regulation and the Slavery Act

• Potential impact of future regulatory changes such as changes to credit risk weights

• Outcome of the processes to confirm that the Group has adequate capital and liquidity

Risk management

• Regular reports from the CRO on key emerging risks, risk appetite and regulatory developments

• Annual review of the Reputational Risk Policy

• Changes to the Risk Appetite Framework and associated risk metrics

• 2016 risk strategy

• Annual review of the effectiveness of systems of risk management and internal controls

Strategy • Quarterly presentations by the Company’s joint brokers

• Strategic review of the Group’s brand

• Updates on strategic initiatives agreed in 2015 and new strategic initiatives, including updates on digital matters

Other • Updates on culture and 2015 Best Companies results

Key topics discussed at Board and strategy meetings in 2016

Time spent in 2016

%

Business performance

19

Financial matters and investor relations

20

Governance 13

IT and operations 10

Regulatory matters 4

Risk management 9

Strategy 20

Other 5

Topic Activity Action

Key:

Reviewed Approved


AppointmentsThe Corporate Governance and Nomination Committee (the “Nomination Committee”) is responsible for making recommendations to the Board regarding the appointment of new Directors.

One new appointment was made to the Board in 2016 (Chris Patrick), whilst the Nomination Committee also oversaw changes to the composition of the Board Committees which arose following the resignations of Peter Cartwright and Neil Cochrane. Chris, Peter and Neil were all appointed to the Board in accordance with the Relationship Agreement between the Group and its Principal Shareholders (further information can be found on page 59). Under the Relationship Agreement, the Principal Shareholders are entitled to appoint up to two Board Directors and a member

of each of the Risk Committee and the Nomination Committee. Consequently, when Peter stepped down from the Board in April 2016, the Nomination Committee considered and recommended to the Board that Neil replace Peter as a member of these Committees in line with the wishes of the Principal Shareholders. Following Neil’s resignation from the Board in October 2016, the Principal Shareholders informed the Company of their intention to appoint Chris as their sole representative on the Board and as a member of the Risk and Nomination Committees. The Nomination Committee considered the proposed appointments and agreed to recommend them to the Board, subject to the completion of fitness and propriety tests. As part of this process, Chris met with each of the Committee Chairs and the Senior Independent Director to assess his competence and

capability, whilst various references were sought and checks completed in order to verify his educational, employment, criminal and credit history. Regulatory approval was not required for Chris’ appointment.

Induction of DirectorsAll Directors receive a comprehensive induction on appointment to enable their effective contribution to the Board as early as possible. Induction programmes are tailored to the needs of the new Director. The Chairman discusses requirements with the new Director, which are facilitated by the Company Secretary. The programme will typically include one-to-one meetings with business and functional heads; site visits; and access through the Board portal to past Board packs and an induction pack containing relevant Group policies and procedures. Details of Chris Patrick’s

Chris Patrick's induction programme

Business Divisions

Corporate Governance

and Legal

IT and Operations

People and Culture

Risk and Regulatory

• Overview of the strategy and vision

• Understanding of the history of the businesses

• Management’s views on the challenges, opportunities and competitive environment

• Understanding of the financial and cultural dynamics and the key risks

• Meeting and engaging with employees

• Introduction to the Group Corporate Governance Framework, including the matters reserved for the Board and the Committee structure

• Overview of Board processes and directors’ duties

• Discussion on the Group’s legal risks

• Overview of the legal and regulatory requirements for listed companies

• Overview of the HR strategic plan and key priorities for the HR function

• Board and executive succession planning

• Overview of the Group’s remuneration policy

• Discussion on setting and measuring the Group’s culture

• Overview of the team structure and scope of the COO function

• Discussion on how the function supports the Group’s strategic plan

• Introduction to project governance processes within the function

• Overview of major transformation projects, the refresh of the Group’s brand and marketing plans for 2017

• Introduction to the Risk Management and Risk Appetite Frameworks

• Overview of the Senior Managers and Certification Regime and how it operates within the Group

• Understanding of the market abuse and inside information regimes




induction programme, which will be implemented during 2017, are set out at the bottom of page 50.

Diversity The Board embraces the benefits of diversity in the boardroom and believes that it generates effective challenge and decision-making. It strives for diversity in the broadest sense – female representation is just one of the factors that is taken into account and all Board appointments are made on merit against a defined job specification. The Company does not therefore consider it appropriate to set a measurable target for gender representation on its Board. Female membership of the Board currently stands at 22%.

The Board adopted a Board Diversity Policy in November 2015, and the Nomination Committee has since reconfirmed that no amendments to this Policy are required at the current time. However, the Policy will be revisited following the appointment of a new Chairman and taking into account developments arising from the Hampton-Alexander Review. The Policy is available at www.investors.aldermore.co.uk

Skills, knowledge and experience As previously mentioned, the Board values all aspects of diversity and recognises the benefit of maintaining a balance of skills, experience and knowledge. During 2015, the Nomination Committee oversaw an exercise to evaluate the skills and experience on the Board. This was based on a self-assessment completed by each Director. The matrix which was compiled as a result has been kept under review in 2016. It was updated to reflect the changes to the composition of the Board during the year and, as a result, the Nomination Committee has been able to satisfy itself that the mix of skills and experience on the Board is appropriate to challenge management and support the Group’s strategy. At the time of the 2015 review, some areas were identified where, in the medium term, the balance of skills,

knowledge and experience could be strengthened. These remain relevant and will be taken into consideration in any future search for new Non-Executive Directors.


Self-assessment of skills and experience – % of Directors with at least a good working knowledge

Listed company experience

Finance

Savings

Mortgages

Business Finance

People and Reward

Technology and Operations

Risk

Experience of a regulated financial services business (PRA and FCA)

Corporate governance experience

78%

89%

78%

78%

56%

67%

56%

89%

89%

100%

Election and re-election The Code requires that all Directors retire and offer themselves for election at the first AGM following their appointment, and for re-election on an annual basis thereafter.

Ahead of the re-election of the Non-Executive Directors being recommended to shareholders, the Nomination Committee assesses the performance, time commitments and independence of each Non-Executive Director and makes a recommendation to the Board in this regard. In addition, the outcome of the appraisals of the Executive Directors (as set out on page 56) is considered. These assessments took place over January and February 2017 and, based on these factors (described further in the paragraphs that follow), as well as the balance of skills, knowledge and experience on the Board as a whole, the Board approved the recommendation that each Director should be proposed for election/re-election at the 2017 AGM. Further information about the Directors, including their experience, is set out on pages 42 and 43.

The Principal Shareholders are classed as a “controlling shareholder” of the Company under the Listing Rules. As a result, the Independent Non-Executive Directors of the Company must be elected or re-elected by both a majority of the votes cast by all of the Company’s shareholders and a majority of the votes cast by the Company’s independent shareholders (being all of the Company’s shareholders other than the controlling shareholder). The outcome of both of these votes will be announced following the 2017 AGM.

Director performance evaluationsDetails of the Director performance evaluation process are set out on page 56. The outcome of the evaluations concluded that each Director continues to be effective and to demonstrate commitment to their role.

Time commitment and independenceThe Nomination Committee reviewed the time commitment to the Company demonstrated by each of the Non-Executive Directors and was satisfied that this was both in line with the requirement set out in their letters of appointment, and sufficient to discharge their duties. The external directorships and other commitments of the Non-Executive Directors were also taken into account in making this assessment.

Independence of the Non-Executive Directors is assessed by the Nomination Committee on an annual basis against the criteria set out in the Code, which require directors to be independent in character and judgement, and free from any relationships or circumstances which could affect that judgement. Factors taken into account in this assessment include length of tenure and any potential conflicts recorded in the Company’s Register of Directors’ Conflicts. The Nomination Committee was satisfied that there had not been any changes in circumstance which would impact on the previous assessment that all Non-Executive Directors, with the exception of the Director who represents the Principal Shareholders, were deemed to be independent.

Separately, on the basis that Danuta Gray will be acting as Chairman in an interim capacity for a limited period only, the Board continue to regard her as independent.

Shareholder-representative DirectorChris Patrick has been appointed to the Board to represent the interests of the Principal Shareholders, and is not therefore considered to be independent under the Code. Notwithstanding that he is not independent, the Nomination Committee confirmed that it was satisfied that he should be recommended for re-election at the 2017 AGM.

Conflicts of interestThe Board has procedures in place to deal with potential conflicts of interest, which are governed by both company law and the Company’s Articles of Association. All Directors are required to declare any interests that could give rise to a conflict of interest with the Group, either on appointment or when they arise. Under the Company’s Articles, the Board is permitted to authorise such conflicts and to impose any conditions on that authorisation that it considers to be necessary, for example to leave Board meetings when certain matters are discussed. All authorisations are recorded in the Board minutes, and entered into the Register of Directors’ Conflicts.

The Nomination Committee has provided guidance to the Board on the declaration of interests which cannot reasonably be regarded as likely to give rise to a conflict of interest. In addition, the Nomination Committee undertakes an annual review of the Register of Directors’ Conflicts to ensure that there have not been any changes in circumstances that would require the Board to revisit any previous authorisation that it has granted, or its view of the Directors’ independence.




During the year, the Nomination Committee considered the prospective appointment of Robert Sharpe as Chairman of Bank of Ireland (UK) PLC. The proposal was considered from the perspective of any potential business conflict of interest; time commitment pressures which would prevent Robert from discharging his role with the Company; and the cross-directorship which would arise given that Peter Shaw was also a Director of Bank of Ireland (UK) PLC. Having taken into account a number of factors, including the character and judgement of both individuals, it was agreed to approve any potential conflict of interest associated with the proposed appointment.

Succession planning Non-Executive DirectorsThe Nomination Committee reviewed succession planning for the Non- Executive Directors during the year. Whilst acknowledging that succession planning was key to the sustainability of the Board, the Nomination Committee was also cognisant that the majority of the Non-Executive Directors had been appointed in 2014 when a Board was formed which would be suitable to lead the Company in a public environment. The tenure of these Directors was therefore less than three years. During the year, tenure was discussed with the longest-serving Non-Executive Director (less than four years on the Board), who had confirmed that he had no specific retirement date in mind. In light of these relatively short tenures, the Nomination Committee confirmed that the previously agreed principles on which future succession planning should be based remained appropriate.

ChairmanTo ensure that an effective Chairman was in place at all times to lead the Board, the Nomination Committee agreed a Chairman Succession Framework in 2015. The Framework outlined the approach that would be taken when the time came to search for a new Chairman, and confirmed that the Senior Independent Director would lead the process. As a result, following the resignation of Glyn Jones as Chairman during the year, the Nomination Committee was able to act quickly to put the Framework into action. Good progress has been made with the search, and a fuller update is provided in the Chair’s introductory letter to the Nomination Committee Report on page 60.

Executive positionsSuccession planning for the Executive Directors was considered by the Nomination Committee during the year, whilst the Executive Committee was strengthened through the appointment of three new members.

The Executive Committee has continued to build on work undertaken in 2015 to develop a pipeline of potential successors to executive positions below Board level. This is an iterative process which aims to assess (and regularly re-assess) the current capabilities and future potential of both the direct reports of the Executive Committee and their teams. This process is key to both the identification of employees who would benefit from or require development plans to further build on their potential, and as a way of highlighting gaps where consideration should be given to recruiting potential successors. As a result, efforts are being focused on increasing the number of employees who are moved into roles that will enable them to broaden their skills and experience, with a view to

stepping up in to a more senior role in due course. The introduction of the Senior Managers and Certification Regime during 2016 has also provided additional impetus to the succession planning process as individual development plans are now required under the regulations.


Board supportAll Directors have access to the advice and services of the Company Secretary, who ensures that Board procedures are complied with. In addition, Directors have access to independent and professional advice at the Company’s expense.

Information flow to the BoardThe Board’s ability to discharge its duties is dependent on the quality of the information that it receives to support decision-making. Information should be accurate and clear, and provided on a timely basis.

Board papersThe Company Secretary takes responsibility for ensuring that the Board receives high-quality information and, to the extent possible, acts as a gateway to challenge any Board papers which require additional clarity. All ad hoc Board papers include an executive summary in a standard format which ensures that key information can be easily identified by the Directors, and that important points are sign-posted.

The format of the regular business performance report to the Board is reviewed regularly in order to ensure that it continues to provide the Board with a holistic view of the business as a whole, and that insight is provided rather than data.

ResourcesA library of useful information has been made accessible to Directors through an online portal. This includes corporate information such as the business plan, corporate governance material, regulatory correspondence and technical updates.

Training and development Training sessions for Directors on topics of relevance to the Board are organised periodically throughout the year to tie in with Board and Committee meetings.

In 2016, training sessions attended by the Board included sessions on the EU Market Abuse Regulation, and Committee-specific training on IFRS9 and hedge accounting (Audit Committee) and developments in the external market (Remuneration Committee). An invite to the Committee-specific training was extended to all Directors and the sessions were well attended by non-members. The training was led by either senior management or external advisers. In addition, Directors attended relevant external training sessions.

The Board values internal development sessions as an important way of engaging with key employees and familiarising themselves with the business. In order to hear the views of the wider employees first hand, the Board has continued with the ‘Meet the Board’ initiative introduced in 2015. In addition, the Audit Committee held a roundtable with members of the Group Internal Audit (“GIA”) function. Further information on these events can be found on the next page.

A training log is maintained by the Company Secretary for each Director as evidence of continuous development.

A longlist of potential training sessions for 2017 is being drafted by the Company Secretary based on proposals raised by Directors through the Board evaluation process. Suggestions from advisers regarding upcoming areas of regulatory change will also be sought. The Company Secretary, the Chairman and Committee Chairs will discuss the proposals, which will broadly cover business-related and technical/

regulatory items. As a result, a programme of quarterly Board training sessions supplemented by Committee-specific training will be finalised for 2017. The ‘Meet the Board’ and GIA roundtable events will also continue.




Meeting our employeesAs part of internal development, the Board appreciates the opportunity to engage directly with employees. Set out below are two examples of how this has been achieved.

‘Meet the Board’ – WilmslowIn 2016, the Directors visited one of the Group’s key sites in Wilmslow (where the Mortgages and Financial Reporting teams are based) as part of an initiative to enable them to engage directly with employees across the business areas and central functions. This followed two similar events held during 2015 when the Directors visited the Group’s Peterborough and Reading sites. The ‘Meet the Board’ event was held in an informal setting and was designed to be interactive, allowing the Directors to gain a deeper understanding of the business, how it operates and the challenges that staff face on a first-hand basis, as well as providing an insight to colleagues on the role of the Board. The event also provided a valuable opportunity for employees to share their ideas and suggestions with the Directors and to put forward questions about the vision and strategy for Aldermore, in order to promote transparency and employee engagement across the Group.

The ‘Meet the Board’ event was well received by both the Directors and the participating employees and will continue in 2017. In particular, the Directors welcomed the informal format of the event which was conducive to stimulating an open debate with colleagues. The feedback from employees was equally positive, with many expressing their appreciation for the Directors’ interest, time and engagement, and commenting on the high quality of the discussions.

“It is excellent when we have Board meetings away from London as we get the chance to meet colleagues and hear what is going on with our customers. The enthusiasm from staff was very motivating, and you could sense the energy and pride in the room. The questions asked were wide ranging and all pertinent to our future business success. I enjoyed chatting to colleagues over lunch and was pleased to learn about how, as we grow, we are creating opportunities for new and different roles and the ability to learn in current jobs.” Cathy Turner, Independent Non-Executive Director

“It was great to see the session attended by so many people. The questions asked were really topical and the Board did a great job at answering the questions, covering both the high-level outlook on topics as well as relating the answers back to people’s day jobs and the customer outlook.” Employee from Financial Reporting

“It was great to see and hear from each of the Board members. I felt that I got more of an insight as to what is going on within the wider Group and Financial Services in general. It is unusual to get an opportunity to meet and speak with Board members when working in this industry so it was great for us to be able to ask questions and get some really useful feedback.” Employee from Residential Mortgages

Group Internal Audit Roundtable – ReadingIn June 2016, a roundtable was held between members of the Audit Committee and the GIA team in response to a recommendation from the 2015 effectiveness review of the GIA function that it would be beneficial to enable Directors to have direct dialogue with the GIA team.

The session was an informal conversation with no fixed agenda, providing the GIA team with an opportunity to introduce themselves to the Audit Committee members and ask questions, including probing Directors for their views on current and horizon risks, their individual expertise and their expectations of the GIA team. The GIA team were also keen to understand the importance of their role in supporting the Audit Committee and the interaction between the GIA Director, the Audit Committee, the other Board Committees and the CEO.

“The roundtable was useful for both the Audit Committee members, who were able to meet and learn about the skills within the GIA team, and for the GIA team who gained an insight into the Audit Committee’s role and responsibilities, its members and their views on key risks within the Group. The Directors had the opportunity to ask the GIA team questions about the work they perform, the challenges faced and areas where the team would benefit from Audit Committee support. This has had a positive cultural impact on the GIA team who felt that they gained insight which they had not experienced in previous roles, as well a unique opportunity to have their views heard at Board level. Further, it provided the team with a greater understanding as to why particular audits were required and the value of the GIA reports, as well as how the Group’s governance structure operates.” GIA Director


Board and Committee effectivenessThe Board recognises the benefits that reviewing the effectiveness of its own performance and that of its Committees can bring, and is conscious that the actions needed to maintain effectiveness will develop over time as the Company, the Board and best practice evolve. Effectiveness is reviewed on an annual basis, and the Nomination Committee oversees this process. In 2016, the Board decided that the annual review would be conducted internally. The last external review was undertaken by Egon Zehnder in 2014 and, in line with the Code, it is anticipated that an external review will next take place in respect of 2017.

The 2016 process was agreed by the Nomination Committee and led by the Senior Independent Director (now the Interim Chairman) with support from the Company Secretary as required. The evaluation was taken forward by way of questionnaires which were issued to all Board and Committee members, and were supplemented by one-to-one meetings between each Director and the Interim Chairman which aimed to seek more context to the responses given. The results were collated and analysed by the Company Secretary, and the draft output was discussed with the Interim Chairman and, in relation to Committees, the relevant Committee Chairs. Finalised reports and action plans were presented and agreed by the Board and Committees. The output concluded that the Board and its Committees operated effectively during 2016. A summary of the outcomes is set out on the next page, together with a summary of the areas for development for 2017 and an update on the actions arising from the last effectiveness review. Information on the Committee reviews can be found in the reports from the individual

Committees on pages 60 to 73 and page 90.

The Nomination Committee will oversee the implementation of the agreed action plan for the Board and interim updates will be assessed during the year. An update on progress against these actions will be reported in the 2017 Annual Report and Accounts.

Director performance evaluationsIn tandem with the process to review Board and Committee effectiveness, a similar process is followed to evaluate the continued effectiveness of the performance of the Non-Executive Directors.

In respect of the year under review, the Interim Chairman undertook a performance evaluation for each

Independent Non-Executive Director, whilst the previous Chairman led the process for evaluating the performance of the Interim Chairman (who had acted as Senior Independent Director throughout 2016). An evaluation of the Chairman’s performance would ordinarily also be undertaken, but this was not completed in 2016 given that the Chairman (Glyn Jones) had already tendered his resignation when the reviews were commenced. To support the evaluations, each Director completed an anonymous questionnaire to provide an assessment of the performance and effectiveness of each of the Independent Non-Executive Directors. The Interim Chairman also solicited verbal feedback from each of the Non-Executive Directors on an individual basis. The output from the performance evaluations is being discussed in one-to-one sessions between the Interim Chairman and each Non-Executive Director, and will identify any development needs in terms of ongoing training.

The performance of the Executive Directors was appraised by the previous Chairman (in the case of the CEO) or the CEO (in the case of the CFO) with input from other Directors. The outcome of the evaluations was reviewed by the Remuneration Committee as part of the process by which changes to salary and bonus outcomes were approved.

The evaluations concluded that each Director continues to be effective, demonstrates commitment to their role, and is able to allocate sufficient time to the Company to discharge their responsibilities effectively.

Board and Committee effectiveness process

Detailed questionnaires completed

One-to-one meetings

Analysis

Discussions with Interim Chairman and

Committee Chairs

Action plans agreed




Update on key development areas in 2016

Continue to embed the recently implemented new template for Board papers

• Good progress has been made with the use of an agreed Board paper template to ensure papers focus on key issues and flag decisions to be made. Management information continues to be an area for further improvement as detailed below in “Key development areas in 2017.”

Implement a more structured process to review the effectiveness of past decisions, and to apply lessons learned

• A structured process for the review of the effectiveness of past decisions has been introduced which monitors on a six-monthly basis items approved by the Board, including achievement of key milestones and evaluation of successes/lessons learned.

Maintain the focus on succession planning

• The approved Chairman Succession Framework served the Company well as the search process for the new Chairman could be initiated immediately.

• The Board has overseen the changes which the CEO has made to strengthen his executive team.

• Succession planning for key executive roles continues to be an area of focus as detailed below in “Key development areas in 2017.”

Review the ongoing development of the Risk Management Framework to ensure appropriate behaviour is embedded into the risk culture

• The Risk Management Framework has continued to evolve, with risk appetite statements and risk metrics being revised and refreshed as appropriate.

Develop a comprehensive training programme to meet Directors’ requirements

• A bespoke training programme on key regulatory and legislative matters was developed.

• Training sessions were held at Board and Committee meetings during the year, facilitated by external advisers where appropriate (further information is detailed on page 54).

• A similar approach is being adopted in formulating a training programme for 2017.

Schedule more informal time for the Board to spend together, and extend some of the meetings to ensure there is adequate time for discussion of all agenda items, in particular strategic issues

• A number of dinners following formal meetings were scheduled to enable Directors to continue discussion of material agenda items.

• An annual round-up of remuneration-related developments was organised by the Remuneration Committee which was presented over dinner by FIT Remuneration Consultants.

• Members have spent informal time with each other and colleagues in the business through the ‘Meet the Board’ events (see page 55 for more information).

• These events will continue to form part of the Board calendar in 2017.

Key areas of strength

• Overall, the Board is considered to work very effectively, with an open and positive culture which encourages all to contribute, as well as challenge and support the executives equally.

• It is acknowledged that there is a good mixture of subject matter experts on the Board but who all contribute on business overall to create a well-balanced team.

• The Chairs of Board Committees are all recognised for their work throughout the year.

Key development areas in 2017

Chairman

• A key focus in the next year will be the introduction of the new Chairman and ensuring his/her transition is smooth.

Agendas and management information

• Responsibilities of Committees and Board are to be reviewed to ensure duties are delegated effectively, agendas are focused on appropriate matters, and overlap is eliminated.

• In structuring meetings, continuously balance the Board agenda between strategic development, risk management and delivery assurance.

• Presentation of management information in papers to be reviewed to avoid duplication across Board and Committee meetings, and to ensure papers are amended to reflect the different areas of focus by each forum.

Succession planning and induction

• Continue to develop executive succession plans for key roles to ensure there are robust plans in place, with a dedicated strategy session to be led by the Group HR Director.

• Monitoring of talent pipeline to continue through the Nomination Committee.

• Ensure that the induction for new Non-Executive Directors is refreshed.

Board composition

• Further assessment of the skills and experience on the Board to be addressed by the new Chairman, noting there may be some further enhancement of the Board in relation to digital technology.

Overview of Board effectiveness review

2016/17 review2015/16 review


Shareholder engagement calendar 2016

Shareholder analysisSet out below is analysis of the Company's shareholder base as at 31 December 2016. The shareholding is relatively concentrated amongst the top 10 shareholders, in particular as the Principal Shareholders hold 40.14% (discussed in more detail on page 59). Overall, the top 10 shareholders hold just under 70% of the total issued share capital.

The majority of shareholders (86%)are based in the UK, particularly in the financial capital of London, with the remaining investors based primarily in the United States of America and in Europe. The primary investment style of the investor base is growth focused. This reflects the Group's growth strategy and an investor base that understands Aldermore’s financial objectives.

Investor relationsIn 2016, the first full-year results as a listed company were presented to the market. A full investor engagement programme led by the CEO and CFO was carried out throughout the year with both holders and prospective holders. Additionally, a specific investor roadshow was run in relation to the £60m Tier 2 Notes issued in October 2016.

Investor meetings are normally undertaken by the CEO, CFO and the Director of Investor Relations. During the year, over 150 individual and group investor meetings were held covering topics such as business performance, competitive positioning, strategy and changes in the regulatory and political environment. The UK’s vote to leave the European Union in June 2016 was one area of particular focus with investors in the year.

Leading Shareholders (% shares outstanding)

The Chairman and Senior Independent Director are also available to attend meetings with shareholders and address any significant concerns that shareholders may have. In particular during 2016, the Senior Independent Director (now Interim Chairman), was available to discuss the resignation of the Chairman, which was announced in November 2016.

The Group provides regular updates on its investor relations website at www.investors.aldermore.co.uk including its half-yearly financial results, reports and presentations, press releases, regulatory news, share price data and useful information for shareholders with regard to managing their shareholdings.

Information to the Board The Chairman is responsible for ensuring effective communication with shareholders and the Board recognises the importance of constructively engaging with its shareholders. Feedback received from investors is regularly shared with Board members through the CFO’s regular business performance report, which aids broader discussions on business matters and other relevant topics.

J.P. Morgan Cazenove and Royal Bank of Canada (RBC) act as joint brokers to the Company. They attend Board meetings on a quarterly basis to provide Directors with input on market conditions and investors’ views. Outside of this formal

January 2016

Preparing materials for full-year results.

February 2016

Review of materials for full-year results.

March 2016

2015 full-year results presented to the market, followed by an investor roadshow led by the CEO and CFO.

May 2016

AGM with shareholders led by the Chairman. Shareholders were invited to vote on resolutions of the Company.

Q1 trading update was presented to the market.

Share register analysis as at 30 December 2016.

Geographic (% shares outstanding)

%

UK 86

Europe 3

North America 9

Rest of World 2

%

Shareholder 1 40.1

Shareholder 2 6.3

Shareholder 3 5.5

Shareholder 4 4.0

Shareholder 5 3.7

Balance 40.4



Relationswith shareholders

Key to activities:

Full-year results

Half-year results

Trading update

AGM

Investor meetings

programme, the views of the brokers are proactively sought on market developments including the regulatory and competitive environment.

During the year, the Board commissioned an independent perception audit of a number of the Company’s leading institutional shareholders and sell-side analysts. Overall, whilst this demonstrated that the Company has a supportive investor base, there are a number of recommendations to further enhance communications and investor relations activity which will be an area of focus in 2017.

Principal Shareholders The Principal Shareholders have an interest in the issued share capital of 40.14% and their relationship with the Company is governed by a Relationship Agreement which ensures that:

- the Company is capable of carrying out its business independently of the Principal Shareholders;

- transactions and arrangements with the Principal Shareholders (and their associates) are at arm’s length and on normal commercial terms (subject to the rules on related party transactions in the Listing Rules); and

- the Principal Shareholders do not take any action that would have the effect of preventing the Company from complying with, or would circumvent the proper application of, the Listing Rules.

During the year, the Nomination Committee, in accordance with its duties, conducted a review of compliance with the terms of the Relationship Agreement and concluded that the Relationship Agreement is working effectively and that the Company is capable of carrying out its business independently of the Principal Shareholders.

The Company has adopted procedures which restrict Directors appointed by the Principal Shareholders from voting on matters where there are conflicts of interest and from using information obtained through their appointments.

Under the Relationship Agreement, as the Principal Shareholders still have an interest in more than 20% of the Company, they are entitled to appoint two Non-Executive Directors to the Board. During the year, Peter Cartwright and Neil Cochrane stepped down from the Board on 18 April 2016 and 14 October 2016 respectively. Currently, Chris Patrick, who was appointed on 21 November 2016, serves on the Board as the only Non-Executive Director appointed by the Principal Shareholders and will stand for election by shareholders at the 2017 AGM.

Annual General Meeting The 2017 AGM will be held at 11.00am on 16 May 2017 at the offices of Linklaters LLP, 1 Silk Street, London, EC2Y 8HQ. The Notice of AGM, together with an explanation of the items of business to be discussed at the meeting, will be posted to shareholders and made available at www.investors.aldermore.co.uk. A resolution will be proposed at the 2017 AGM to amend the Company’s Articles of Association so that future AGMs may be held electronically.

All members of the Board will be in attendance at the 2017 AGM which will provide an opportunity to engage with shareholders on the key issues facing the Group and respond to any questions shareholders may have. All the Directors will be available after the meeting to meet shareholders on an informal basis. Voting at the 2017 AGM will be conducted by a poll and the results will be announced to the market and made available on the Group’s website as soon as practicable following the meeting.

August 2016

Half-year Results were presented to the market.

September 2016

Investor roadshow of half-year results was led by the CEO and CFO, following the summer break. An investor roadshow was also undertaken ahead of the issuance of £60m Tier 2 Notes to the market in October 2016.

November 2016

Q3 trading update was presented to the market.

December 2016

Continued to engage with current and potential investors, with over 150 meetings held in the year.


Nomination Committee at a glance

• The Nomination Committee is composed of a majority of Independent Non-Executive Directors in line with Code requirements and is chaired by the Company Chairman:

- Danuta Gray (Chair), Interim Chairman1

- Chris Patrick, Non-Executive Director

- Peter Shaw, Independent Non-Executive Director

- Cathy Turner, Independent Non-Executive Director

• Glyn Jones and Peter Cartwright were also members of the Nomination Committee until their resignations from the Board with effect from 6 February 2017 and 18 April 2016 respectively. Neil Cochrane served as a member of the Nomination Committee between 10 May 2016 and 14 October 2016.

• Regular attendees at meetings of the Nomination Committee include the CEO and Company Secretary.

• The Nomination Committee’s key roles are to oversee the Board’s governance arrangements and to ensure these are consistent with best practice standards; and to review the composition and effectiveness of the Board to support planning for its progressive refreshing.

• The Nomination Committee’s terms of reference are reviewed annually and are available at www.investors.aldermore.co.uk

1 Meetings will be chaired by the new Company Chairman once appointed and Danuta Gray will remain a member in her capacity as Senior Independent Director.

SID, I would assume the Chair role on an interim basis.

Perspectives on a number of external search agencies were debated by the Nomination Committee and a shortlist of agencies invited to pitch. Based on those discussions and how the respective agencies would approach our assignment, Ridgeway Partners was engaged. In conjunction with Ridgeway Partners, a detailed specification was prepared which included the most critical skills, experience and characteristics we would look for in the new Chairman. We are making good progress with the search and look forward to announcing a replacement in due course.

Further detail on the key activities that the Nomination Committee focused on in 2016 can be found on page 61. We are cognisant that governance is a dynamic area and we will continue to monitor and further embed best practice to ensure that our governance frameworks support and underpin the delivery of our strategy.

Whilst the annual effectiveness review of the Nomination Committee confirmed that we continue to operate effectively, an area highlighted for enhancement relates to succession planning. In light of this and the need to ensure that we have adequate succession planning in respect of Executive Directors and senior management, and to ensure that we have the right talent and initiatives to develop internal executives for execution of our strategy, we intend to make this a continued area of focus in 2017.

Danuta Gray,Chair of Corporate Governance

and Nomination Committee

Dear ShareholderAs a consequence of the resignation of Glyn Jones, I am now acting as Chair to the Corporate Governance and Nomination Committee (the “Nomination Committee”), and I am therefore pleased to present this report to you.

Following the resignation of Neil Cochrane as the representative of our Principal Shareholders, Chris Patrick was nominated as his replacement. With responsibility for reviewing Board vacancies, the Nomination Committee considered the appropriateness of the candidate and was pleased to recommend the appointment of Chris as a Non-Executive Director and member of the Nomination Committee and Risk Committee in November 2016.

The Nomination Committee (led by myself as the Senior Independent Director (“SID”)) has dedicated considerable time to overseeing the search to identify Glyn's replacement. John Hitchins, our Audit Committee Chair, was also formally invited to join discussions and form part of the search process. We were well placed to initiate the search process quickly and effectively as, in the prior year, we had agreed a Chairman Succession Framework which outlined the agreed approach that would be adopted should a replacement ever be needed. The Framework, which was developed to ensure that the Company has in place at all times an effective Chairman to lead the Board, confirmed that, as the



Corporate Governance and Nomination Committee Report

Committee effectivenessThe Nomination Committee undertook a review of its own effectiveness through 2016 as part of the wider Board and Committee evaluation exercise. The review took the form of an internal evaluation and was conducted principally by way of a questionnaire that was issued to all Nomination Committee members.

The review covered various areas including the role and remit of the Nomination Committee; the effectiveness of the Chair; the appropriateness of information provided to the Nomination Committee; and the relationship with management. The Nomination Committee discussed the outcome of the review in early 2017. The Nomination Committee confirmed that it operated effectively and there were no significant areas for concern. It also noted that succession planning would remain a key area of focus in 2017. Further information about the Board and Committee effectiveness process is set out on pages 56 and 57.

Responsibilities of the Nomination Committee

• To review the Group’s corporate governance arrangements and frameworks to ensure that they are consistent with best practice

• To review the Board’s size, structure and composition, including the skills, knowledge, experience and diversity of the Directors, and that of the Board Committees

• To lead the process for nominating candidates to fill Board vacancies as they arise

• To oversee the annual effectiveness review of the Board and its Committees

• To oversee compliance with the terms of the Relationship Agreement with the Principal Shareholders

• To formulate succession plans for the Chairman, Non-Executive Directors and key senior executives

Annual effectiveness review

• Output of the 2015 annual effectiveness review of the Board and the Nomination Committee, including agreement of action plans

• Update on actions arising from the 2015 annual effectiveness review

• Process for the 2016 annual effectiveness review of the Board and its Committees, and Directors’ evaluations

Appointment/reappointment of Directors

• Annual re-election of Directors and review of their independence

• Appointment of a new shareholder-representative Director

Board composition

• Review of Board Committee composition following the resignation of Peter Cartwright and Neil Cochrane as Directors

• Annual review of the structure, size and composition of the Board and its Committees, including the balance of skills, knowledge, experience and diversity of the Directors

Directors’ conflicts

• Potential conflicts arising from the proposed appointment of Robert Sharpe as Chairman of the Bank of Ireland (UK) PLC

• Annual review of the Directors' Conflicts Register

Governance • Nomination Committee Report to be included in the 2015 Annual Report and Accounts

• Gap analysis against the PRA supervisory statement – “Corporate governance: Board responsibilities”

• Compliance with the Relationship Agreement between the Company and its Principal Shareholders

• Annual programme of agenda items for Nomination Committee meetings in 2017

Succession planning

• Succession planning for both Executive and Non-Executive Directors

• Succession planning for the Chairman role and initiation of the search for a new Chairman, including job specification, selection of search agency and clarification of regulatory requirements

Key topics discussed at Nomination Committee meetings in 2016


Time spent in 2016

%

Annual effectiveness review

7

Appointment/reappointment of Directors

7

Board composition 5

Directors’ conflicts 1

Governance 10

Succession planning 70

Key:

Reviewed Recommended to Board

Approved


Audit Committee at a glance

• The Audit Committee is composed of four Independent Non-Executive Directors, in line with Code requirements:

- John Hitchins (Chair), Independent Non-Executive Director

- Robert Sharpe, Independent Non-Executive Director


- Chris Stamper, Independent Non-Executive Director

• Regular attendees at the Audit Committee include the CEO, CFO, CRO, Group Internal Audit Director, Group Financial Controller, representatives from KPMG and the Company Secretary.

• To comply with Code requirements that the Audit Committee has at least one member with recent and relevant financial experience, the Board is satisfied that John Hitchins meets these requirements, being a qualified chartered accountant with extensive financial and audit experience.

• The Audit Committee has also reviewed the new Code requirement that the Committee as a whole should have competence relevant to the sector in which the Company operates, and has confirmed its compliance with this statement. See pages 42 and 43 for full biographical details of Audit Committee members.

• The Audit Committee’s key role is to review the integrity of the financial reporting for the Group and to oversee the effectiveness of the internal control systems and work of the internal and external auditors.

• The Audit Committee’s terms of reference are reviewed annually and are available at www.investors.aldermore.co.uk

audit team at KPMG for the support they have given to the organisation as it has transitioned into a listed company.

Given the highly regulated environment that we operate within, I am pleased to report that the outcome of the annual evaluation of the Group Internal Audit ("GIA") function demonstrates that overall the team is operating effectively and that it continues to evolve in tandem with the maturity of the organisation. In line with the Chartered Institute of Internal Audit ("CIIA") standards, the Audit Committee has agreed to commission an external quality assessment in 2017 to benchmark GIA activities against best practice and peers. Ahead of this, during 2016, the function conducted a self-assessment against the CIIA published guidance on “Effective Internal Audit in the Financial Services Sector” which provided assurance to the Audit Committee that, on a proportionate basis, the function complied with all relevant areas. Further information about GIA can be found on page 67.

The report sets out the areas the Audit Committee focused on in 2016. Many of these will again form areas of focus for us in 2017 and, in particular, the Audit Committee will continue to provide regular oversight to the IFRS9 programme (which was mobilised during 2016) to ensure that the Company is ready for the implementation of this standard with effect from 1 January 2018.

Dear ShareholderI am pleased to present this report of the Audit Committee for the year ended 31 December 2016 and I set out below some key highlights. We continue to maintain a close relationship with the Risk Committee as there are topics of mutual interest, although with different areas of focus.

The Conduct Committee of the Financial Reporting Council ("FRC") reviews the report and accounts of public and large private companies to determine whether they comply with the Companies Act 2006 and other reporting requirements. These reviews are conducted on a “desk top” basis without access to companies’ detailed records, but nonetheless the Audit Committee was delighted to receive a “no issues” letter from the FRC which confirmed that, based on their review of the Group’s 2015 Annual Report and Accounts (our inaugural report as a listed company), they had no questions or queries to raise at that time.

Taking into account the framework set out in the Audit Tendering Policy (which we adopted in June 2016), the Audit Committee initiated a project in the second half of 2016 to design and execute a tender process for the external auditor. This was a significant and comprehensive exercise which concluded with the Board approving the Audit Committee’s recommendation that Deloitte LLP be appointed as our external auditor for the period commencing 1 January 2017. I would like to extend my thanks to our audit partner and the wider

John Hitchins,Chair of Audit Committee



Audit Committee Report

In addition, the Audit Committee received regular updates from the GIA function on audit reports issued and progress against audit recommendations. Non-audit services and fees were also monitored.

Responsibilities of the Audit Committee

• Monitor the integrity of the financial statements of the Group, including its annual reports, half-yearly reports and quarterly updates

• Challenge the consistency of, and any changes to, accounting policies and confirm whether the Group has complied with and followed appropriate accounting standards and made appropriate estimates and judgements

• Monitor and keep under review the effectiveness of the Group’s internal financial controls and internal control systems

• Assess whether the Group’s financial reports are fair, balanced and understandable; the appropriateness of the adoption of the going concern basis of accounting; and the statement that the Directors have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due

• Review the adequacy of the Group’s whistleblowing arrangements and procedures for detecting fraud and preventing bribery and money laundering

• Monitor the remit and effectiveness of the GIA function, review all internal audit reports and monitor management’s responsiveness to the findings and recommendations

• Oversee the relationship with the external auditor, including the approval of audit and non-audit fees and terms of engagement, annually assessing their independence and reviewing their findings

External audit

• External audit control observations, including management's responses

• External auditor's assessment of their independence

• 2016 audit strategy, terms of engagement and fee proposal

• Effectiveness review and reappointment of the external auditor

• New Audit Tendering Policy

• Audit tender process and recommendation to the Board to appoint a new external auditor with effect from the 2017 AGM

Financial reporting

• Financial results, including going concern and viability statements, and the 2015 Annual Report and Accounts

• Representation letters to the external auditor

• Key judgement areas for the 2016 half-year and full-year results

• Pillar 3 disclosures as at 31 December 2015

• Project to implement IFRS9 (new guidelines for calculating and reporting provisions) with effect from 1 January 2018

• Regular review of policies, including the Loan Impairment and Provisioning Policy and Hedge Accounting Policy, and approval of a new Effective Interest Rate Stance Policy

Governance • Annual programme of agenda items for Audit Committee meetings in 2017

• Review of the Audit Committee's effectiveness

• Regulatory developments which impact on audit committees

Internal audit

• Annual review of the effectiveness of the GIA function, and consideration of progress against actions from the previous review

• Output from the review of the GIA function against the CIIA guidance on “Effective Internal Audit in the Financial Services Sector”

Internal controls

• Annual report from the Money Laundering Reporting Officer

• Annual review of whistleblowing arrangements

• Assessment of the effectiveness of systems of risk management and internal controls

• Annual review of disclosure controls and procedures, including the impact of the implementation of the EU Market Abuse Regulation

• Updates on data governance

• Processes for preventing fraudulent financial reporting

• Enhancement of the Business Assurance Framework

Key topics discussed at Audit Committee meetings in 2016

Time spent in 2016

%

External audit 16

Financial reporting 46

Governance 6

Internal audit 17

Internal controls 13

Other 2


Key:


Approved


Areas of focus Financial reportingIn respect of financial reporting, the Audit Committee considered the Company’s half-year and annual financial statements and considered a number of significant issues and areas of judgement (as set out in the table below). The issues are broadly similar to those looked at in 2015 except deferred tax is no longer considered significant given the substantial reduction in the deferred tax asset.

Key issues/judgements in financial reporting Audit Committee review and conclusions

Loan impairment provisionsThe calculation of loan impairment provisions is management’s best estimate of losses incurred in the Group’s portfolios at the balance sheet date. It involves estimates of expected future cash flows based on both the likelihood of a loan and advance being written off and the estimated loss on such a write-off.

At 31 December 2016, the Group held £14.3m of specific loan impairment provisions and £13.1m of collective provisions respectively.

- The Audit Committee reviewed regular reports during the year in relation to both the collective and individual loan impairment provisions. The collective impairment model involves a number of significant assumptions. All key assumptions, including the probability of default and emergence period, have been considered, challenged and reviewed, including an analysis of the sensitivity of each key assumption.

- The probability of default is assessed using information obtained from a credit bureau for comparable borrowers. These probabilities of defaults are then adjusted (usually downwards) to reflect the nature of the Group’s lending. The level of adjustment is based on historic internal data.

- Emergence period assumptions are necessary to estimate the time between the trigger events occurring and loans being identified as impaired. The Group has limited historical data available and therefore uses market insight to estimate the emergence period assumptions. As a result of the UK’s decision to leave the EU, it is widely predicted that the UK economy will experience a sustained period of economic uncertainty. Whilst it is impossible to predict the potential impact of this economic uncertainty, a decision was made to increase the emergence period for the Mortgages segments in June 2016. This had the impact of increasing the collective impairment by £1.6m.

- The Audit Committee also considered specific cases of individual provisions. The significant judgements in calculating specific provisions relate to the estimate of the value of collateral due to the specialised nature of lending in SME Commercial Mortgages and Asset Finance, coupled with the alternative exit strategies which can be adopted.

- The Audit Committee agreed management’s judgement was appropriate as at 31 December 2016. The disclosures relating to loan impairment provisions are set out in Note 3 and Note 22 to the financial statements on pages 166 to 167 and 177 to 178 respectively.



Audit Committee Reportcontinued

Key issues/judgements in financial reporting Audit Committee review and conclusions

Effective Interest Rate (“EIR”)The EIR method of accounting for income recognition requires management to make a number of assumptions. In particular, management must make a significant judgement around the estimation of the expected life of loan assets across the Group’s portfolios.

At 31 December 2016, the Group’s balance sheet includes an EIR asset of £6.8m.

- The EIR method of accounting uses a discounted cash flow model to spread interest and fee income and expense attributable to loan assets, including costs and other premium and discounts, over the estimated life of the asset.

- The Audit Committee considered and challenged the key assumptions within the EIR models. One of the key assumptions relates to the expected life of the loan asset which is underpinned by judgements made on the likely repayment profile of the Group’s loan portfolios (both organic and acquired) driven by expected future customer behaviour. During the year, the Audit Committee reviewed, challenged and approved an updated governance framework related to the preparation and ongoing monitoring and enhancement of these repayment profiles.

- It further reviewed the reassessment of the expected lives as at 31 December 2016, further details of which are given in Note 3 to the Financial Statements on page 168. The Audit Committee was satisfied that this reassessment had been prepared in line with the updated governance framework. After considering sensitivities of key judgements, the Audit Committee agreed that management’s judgement was appropriate.

Share-based paymentsShare-based payments are material by nature and determination of the fair value of share-based payments awarded to Directors and employees of the Group requires management to make a number of judgements.

A total charge of £3.5m in relation to share-based payments was reflected in the income statement during the year.

- During 2016, further share awards were granted under the existing schemes, including a modification. The most significant judgement remains the calculation of the expected volatility of the Company’s share price.

- The Audit Committee considered the accounting for the share plans, including the methodology used to calculate the fair value of the awards granted and the key inputs and assumptions used in the valuation models to calculate the charge.

- The Audit Committee considered sensitivities of key assumptions and was satisfied with the judgements applied in calculating the fair value of the awards granted. The disclosures relating to share-based payments are set out in Note 3 and Note 37 to the financial statements on pages 168 and 186 to 189 respectively.

Goodwill attributable to Invoice FinanceDuring 2016, the Group impaired goodwill balances totalling £4.1m attributable to the Invoice Finance segment.

Accounting standards require an assessment of goodwill balances for impairment on at least an annual basis.

- At 1 January 2016, the Invoice Finance goodwill was carried forward using the Fair Value Less Cost of Disposal ("FVLCD") method of valuation. During 2016, following the UK's decision to leave the EU, there was a general fall in the market value of financial services businesses. As a result, at the half year a decision was taken to impair the goodwill relating to the Invoice Finance business of £4.1m.

- The disclosures relating to the Invoice Finance goodwill are set out in Note 3 and Note 28 to the financial statements on pages 169 and 182 respectively.


Fair, balanced and understandableIn line with the Code, the overarching principle for an annual report and accounts is that the report as a whole is “fair, balanced and understandable and should provide the information necessary for shareholders to assess the company’s position and performance, business model and strategy”. This requirement was at the forefront of the Audit Committee’s planning process for the 2016 Annual Report and Accounts to ensure that it could provide assurance to the Board about making this statement.

The process enabling the Audit Committee to reach this conclusion included:

• The production of the 2016 Annual Report and Accounts was managed by the Chief Financial Officer, with overall governance and co-ordination provided by a cross-functional team of senior management.

• This support included input from Finance, Risk, Company Secretariat, Investor Relations and the business lines (including the Managing Directors).

• There was a robust review process of inputs into the 2016 Annual Report and Accounts by all contributors to ensure disclosures were balanced, accurate and verified, and further comprehensive reviews were conducted by senior management.

• The Company Secretary reviewed all Board and Committee minutes to ensure all significant matters discussed at meetings were appropriately disclosed in the 2016 Annual Report and Accounts as required.

• A full review was undertaken by the external legal advisers to ensure all disclosure requirements were met, as well as following best practice.

• A formal review was undertaken by the Audit Committee of the draft 2016 Annual Report and Accounts in advance of final sign-off.

• A final review was performed by the Board of Directors.

In conclusion, the Audit Committee is satisfied that the 2016 Annual Report and Accounts meets the “fair, balanced and understandable” criteria.

Internal controls and risk managementThe Audit Committee is responsible for reviewing the adequacy and effectiveness of the Group’s systems of internal control and risk management. Details of the risk management systems in place are provided within the risk management section from page 106.

Details of the process performed to assess the effectiveness of internal controls are provided on page 31.

On the recommendation of the Audit Committee and Risk Committee, the Board concluded that the Group’s systems of internal control and risk management were appropriately designed and operated effectively during 2016.

WhistleblowingThe Audit Committee reviews the adequacy and security of the Group’s whistleblowing arrangements for its employees and contractors to raise concerns, in confidence, about possible wrongdoing in financial reporting or other matters. Under new regulation in 2016, the Company was required to appoint a Whistleblowing Champion to oversee the effectiveness of the whistleblowing framework, and an accountable executive for establishing policies and procedures on whistleblowing. The Chair of the Audit Committee and the Chief Risk Officer agreed to be appointed to these roles, and will carry out their responsibilities in conjunction with the Audit Committee.

During 2016, the Audit Committee reviewed the Group's whistleblowing arrangements and it was agreed that, in order to complement the processes that were already in place, an independent third-party provider would be appointed to operate a whistleblowing line. Avenues previously available to an employee for raising a concern remain in place (i.e. with their line manager in the first instance or, where not appropriate, directly with the Head of Compliance via a dedicated contact number). Once a report has been made, an initial assessment is undertaken in order to decide if an independent investigation is required.

In respect of the year under review, a report on whistleblowing was considered by the Audit Committee which concluded that there were no areas of concern which were significant or demonstrated material weaknesses in internal controls during the year.




Group Internal auditThe Group has an independent and objective GIA function which acts as the third line of defence. The GIA Director reports directly to the Audit Committee Chair and to the CEO for administrative purposes. The GIA Director meets with the Audit Committee Chair on a frequent basis and periodically with the whole Audit Committee without management present. In addition, the Audit Committee held a roundtable with members of the GIA team during the year, which allowed the Audit Committee to delve further into key areas of focus. See page 55 for more information about the roundtable event.

The Audit Committee reviews and approves the GIA Risk Assessment and Plan of Work (“GIA Plan”) including the adequacy of resources and skills available. The GIA Director utilises specialist knowledge from external consultants, where appropriate, to supplement the skills of the GIA team. The GIA Director monitors changes to the business and the external environment throughout the year and considers whether any changes to the GIA Plan are needed. Any proposed changes are reviewed and approved by the Audit Committee.

The Audit Committee receives regular reports on progress against the GIA Plan including reports on individual audits as well as thematic issues identified. The Audit Committee also reviews the effectiveness of management action plans to remediate GIA findings and receives reports from GIA on the progress management has made in implementing audit recommendations.

To assess the effectiveness of GIA in respect of 2016, the Audit Committee performed an internal review which included obtaining feedback from members of the Audit Committee, as well as executive management. It also had regard to the CIIA guidance on “Effective Internal Audit in the Financial Services Sector” (“CIIA Guidance”). The internal review concluded that the function was effective overall noting that, while there were some areas for further development, these had already been identified and were being acted upon by the GIA Director. During the year, GIA also performed a self-assessment against both the CIIA Guidance and internal auditing standards. The Audit Committee reviewed the output from this review, which confirmed that GIA was operating effectively against the standards.

The Audit Committee has decided that in 2017 it will commission an external quality assessment to benchmark GIA activities against best practice and peers.

External auditThe Audit Committee is responsible for overseeing the relationship with the external auditor, including the ongoing assessment of the auditor’s independence. The Audit Committee makes recommendations to the Board with regard to the appointment of the external auditor, and approves their remuneration and terms of engagement.

KPMG LLP and its predecessor firm, KPMG Audit PLC, were appointed as the Company’s auditor in 2009. The current audit partner is Mike Peck who has been in place since 2014.

During 2016, the Audit Committee Chair met the external auditor on a regular basis during the year to facilitate effective and timely communication.

The Audit Committee also met the external auditor once during the year without management present in order to discuss their remit and raise any issues arising from the audit.

IndependenceProcesses are in place to safeguard the independence of the external auditor, including controls around the use of the external auditor for non-audit services and the operation of a Policy on the Employment of Former Employees of the External Auditor. Details of the Non-Audit Services Policy are set out on page 69. In addition, the external auditor provides the Audit Committee with further assurance as to the procedures that it maintains to preserve objectivity and confirmation that it remains independent.

EffectivenessThe Audit Committee assesses the effectiveness of the external auditor and the external audit process on an annual basis through a number of steps, including: i) agreement of their engagement letter and fees; ii) a review of the external audit plan, including the experience of the audit team assigned; iii) an evaluation of the reports issued following inspections of KPMG LLP by the Financial Reporting Council’s Audit Quality Review team; iv) a review of the clarity and thoroughness of KPMG LLP’s written reports and contribution to Audit Committee discussions; and v) a review of non-audit fees to confirm compliance with the Non-Audit Services Policy. Following its review of the 2016 external audit process, the Audit Committee concluded that it was effective.


External audit tender processThe tender process was overseen by the Audit Committee, with support from a steering group comprising the Audit Committee Chair, the Risk Committee Chair, the CFO and the Group Financial Controller. The tender process involved five key stages, which are summarised below:

Audit tenderDuring the year, the Audit Committee approved an Audit Tendering Policy which confirmed that the external audit contract would be put out to tender at least every 10 years, and where a competitive tender had not been completed in the last five years, the Company would confirm when it proposed to carry out a tender and the reasons why. This was in line with both the Code and other regulatory requirements.

The Audit Committee decided to commence a tendering process in 2016. This process culminated in a

recommendation to the Board that Deloitte LLP should be appointed as the Company’s auditor with effect from the 2017 AGM. This recommendation was approved by the Board in December 2016 and the proposed appointment is included in the 2017 Notice of AGM. Further detail on the tender process is provided below.

Audit Committee effectiveness The Audit Committee undertook a review of its own effectiveness through 2016 as part of the wider Board and Committee evaluation exercise. The review took the form of an internal evaluation and was principally conducted

by way of a questionnaire that was issued to all Audit Committee members.

The review covered various areas including the role and remit of the Audit Committee; the effectiveness of the Chair; the appropriateness of information provided to the Audit Committee; and the relationship with management. The Audit Committee discussed the outcome of the review in early 2017. The Audit Committee confirmed that it operated effectively and there were no significant areas for concern. Further information about the Board and Committee effectiveness process is set out on pages 56 and 57.

Stage 1 – Initial meetings with

the audit firms

Stage 2 – Issue of formal invitation

to tender

Stage 3 –Provision of information

to audit firms

Stage 4 – Meetings with key

individuals and submission of final proposals

Stage 5 – Presentation to the Audit Committee and outcome

• Intention to tender was advertised on the corporate governance section of the Group’s Investor Relations website.

• Five interested firms (including the incumbent firm) met with the audit tender steering group.

• These sessions enabled the steering group members to gain insight into the experience, qualification and fit of the proposed audit teams as well as to discuss any potential independence issues.

• An invitation to tender was issued to three shortlisted firms, along with a deadline to submit their intent to tender.

• The firms were also requested to submit a non-disclosure agreement, a declaration of independence from the Group and a supplier questionnaire.

• The shortlisted firms met with members of the executive team, the Audit Committee Chair and the GIA Director.

• These meetings were performed over two days and provided an opportunity for the Group to evaluate the firms in an informal setting, and for the firms to further enhance their understanding of the Group.

• Following these meetings, the firms had an opportunity to ask further questions before submitting their final proposals.

• The Group issued all shortlisted firms with relevant information to provide them with an overview of the Group’s history, business and audit requirements.

• The firms were provided with the opportunity to ask clarification questions to increase their understanding of the Group and support their tenders.

• All three firms were asked to present their audit proposals to the steering group.

• Based on a careful assessment against a comprehensive set of evaluation criteria, the Audit Committee recommended a preferred firm together with an alternative.

• After careful consideration, the Board accepted the recommendation from the Audit Committee to appoint Deloitte LLP as the Group’s external auditor for 2017.

• The appointment of Deloitte LLP will be recommended to shareholders at the 2017 AGM.




Non-audit services To ensure the independence of the external auditor, the Audit Committee has adopted a formal policy on the engagement of the auditor to perform non-audit services.

Under the Non-Audit Services Policy, the external auditor is prohibited from undertaking any work that is considered to threaten its independence or objectivity in its role. Prohibited work specifically includes bookkeeping services, the design and implementation of financial information systems, appraisal or valuation services, actuarial or legal services, and any other work that would involve the external auditor in preparing financial information that is included or disclosed in the audited financial statements, or in making judgements or taking decisions on behalf of management.

The external auditor is permitted to undertake work in other areas as long as it is the most suitable supplier of the service and the terms and conditions of the engagement, including the level of the fee, do not impair its objectivity or independence. Under the Policy, the Audit Committee pre-approves

the use of the external auditor for routine non-audit services, such as profit verifications and country-by-country reporting.

Agreement to use the external auditor for non-audit services must be approved as set out below.

When determining whether the external auditor is the most suitable supplier of a particular service, management and the Audit Committee take into account the cost-effectiveness of the service and the external auditor’s knowledge of the Group. KPMG LLP has policies and procedures in place to ensure that the highest standards of objectivity, independence and integrity are maintained, and these comply with the Auditing Practices Board’s Ethical Standards for Auditors. The audit engagement partner must approve any non-audit services offered to the Group. This ensures that the objectives of the proposed engagement are not inconsistent with the objectives of the audit; allows the identification and assessment of any related threats to KPMG LLP’s objectivity; and assesses the effectiveness of available

safeguards to eliminate such threats or reduce them to an acceptable level. KPMG LLP do not carry out non-audit services where no satisfactory safeguards exist.

During the year, the external auditor was engaged to perform the following non-audit services:

The above services resulted in total non-audit services being provided of £0.3m.

In 2016, the ratio of non-audit services to the external audit fee was 58%. Further information on the total fees and non-audit fees paid to the external auditor is detailed in Note 16 of the financial statements on page 174.

Non-audit services

Service Approval required

Service not previously pre-approved regardless of fee

Audit Committee

Any engagement greater than £100k Audit Committee

Pre-approved services between £20k and £100k

CFO

Pre-approved services less than £20k Direct report to the CFO

%

Audit-related assurance services

45

Corporate finance services

6

Taxation compliance services

4

Other assurance services

25

Other taxation advisory services

11

Other services 8


Risk Committee at a glance

• The Risk Committee is composed of a majority of Independent Non-Executive Directors, one of whom chairs the meetings, in line with the Walker Review recommendations:

- Peter Shaw (Chair), Independent Non-Executive Director

- John Hitchins, Independent Non-Executive Director

- Chris Patrick, Non-Executive Director

- Robert Sharpe, Independent Non-Executive Director

- Chris Stamper, Independent Non-Executive Director

• Peter Cartwright was also a member of the Risk Committee until his resignation from the Board with effect from 18 April 2016. Neil Cochrane acted as Peter’s alternate over this period, and served as a member in his own right between 10 May 2016 and 14 October 2016.

• Regular attendees at meetings of the Risk Committee include the CRO, CEO, CFO, business Managing Directors, Group Internal Audit Director, Company Secretary and representatives from the Group’s external auditor.

• The Risk Committee’s key role is to provide oversight of and advice to the Board on the current risk exposures and future risk strategy of the Group, including the development and implementation of the Group’s Risk Management Framework and for ensuring compliance with the Group’s approved risk appetite.

• The Risk Committee’s terms of reference are reviewed annually and are available at www.investors.aldermore.co.uk

Further detail on the enhancements that we have made to the Risk Management Framework is set out overleaf, but I would highlight in particular the progress made on embedding our Business Assurance Framework (which tests the controls within the business divisions and central functions) to reflect the growing size, scale and complexity of the Group; enhancing our stress testing capabilities; augmenting our lending policies; and reviewing our buy-to-let underwriting standards in response to regulatory changes. We have also maintained a watching brief over the impact of the UK’s decision to leave the EU on our business, both at the time of the vote and as further detail on the execution of that decision has emerged. We will continue to do so as we look towards our priorities for 2017.

The Risk Committee keeps under review those risks on the horizon that could have a material impact on the Group in the future. These emerging risks will be an area of focus in 2017, alongside the impact on our risk appetite of changes in the external environment.

Peter Shaw,Chair of Risk Committee

Dear ShareholderI am pleased to present the report of the Risk Committee for 2016. The promotion of a strong risk culture is a key Board responsibility and the regular attendance at meetings of the Risk Committee by other Directors who are not members reflects the Board’s desire to set this ‘tone from the top’.

In November 2016, we welcomed Chris Patrick to the Risk Committee as the representative of our Principal Shareholders. Chris brings with him a wealth of financial and risk management experience. Peter Cartwright and Neil Cochrane served as shareholder-representative members during the year, and I would like to take this opportunity to thank them both for their outstanding contributions to the Risk Committee during their respective tenures. Following changes to the CEO’s executive team, the Risk Committee is now supported by a new Chief Risk Officer, Christine Palmer. Joining from RBS where she held senior risk roles for the last 13 years, Christine brings strong leadership to the Risk function.

The Risk Committee has again had an active agenda in 2016. Our key priority has been to build on the substantial investment in the Risk Management Framework that we oversaw in 2015. We have continued to evolve and embed risk frameworks, policies and procedures, whilst remaining cognisant of the growth of the business, the changing economic outlook and developments in the regulatory environment.



Risk Committee Report

In addition, a report is provided at each meeting from the CRO covering performance against the risk appetite metrics, escalated items from the businesses and emerging risks. The Risk Committee also receives regular updates on areas including cyber security and requests for risks to be accepted.

Responsibilities of the Risk Committee

• Oversee the Group’s overall risk appetite, risk tolerance and risk strategy

• Monitor the risk profile against the Board-approved risk appetite

• Oversee the development, implementation and effectiveness of the overall Risk Management Framework

• Monitor the effectiveness of the Group’s risk management and internal control systems

• Review the stress and scenario testing of the Group’s strategic and business plans

• Ensure the adequacy of compliance with regulatory requirements (including the ICAAP and ILAAP) and recommend to the Board for approval

• Review and monitor activities, independence and effectiveness of the Risk function, including Compliance

• Review risk-related Group policies for recommendation to the Board

• Provide advice to the Remuneration Committee on principles and deliverables that will ensure that the determination of remuneration fully reflects risk performance

Capital andliquiditymanagement and stress testing

• Internal Capital Adequacy Assessment Process ("ICAAP") and the Internal Liquidity Adequacy Assessment Process ("ILAAP")

• Issuance of Tier 2 Loan Notes

• Base and stress scenarios for the budget and ICAAP

• Annual review of the Stress Testing Framework

Governance • Annual review of the Risk Committee’s effectiveness

• Report from the CRO on the assessment of risk performance in relation to incentive schemes

• Annual programme of agenda items for Risk Committee meetings in 2017

Regulatorymatters

• Regular monitoring of the PSM action plan

• Impact on the Mortgages business of the PRA consultation paper on buy-to-let underwriting standards

• BCBS review of standardised credit risk weights and its impact on the Group

Riskframeworksand policies

• Annual review of the Risk Appetite Framework

• Changes to the Operational Risk Management Framework and the annual review of its effectiveness

• Proposals to introduce a Group Policy Management Framework and a Group Models Management Framework

• Annual review of policies including the Group Concentration Risk Policy and Prudential/Treasury Policies

• Annual review of the Reputational Risk Policy

• Embedding of changes to the Business Assurance Framework

Risk strategy, risk profile and risk appetite

• Half-yearly updates on products approved and credit policy changes

• Conduct risk deep-dive

• Annual review of risk strategy

• Adoption of a simplified approach to the monitoring of strategic risks

• Deep-dive into performance against risk appetite in the Mortgages business

• Review of risks associated with change activity across the Group, including post implementation reviews

Time spent in 2016

%Capital and liquidity management and stress testing

17

Governance 9

Regulatory matters 12Risk frameworks and policies

18

Risk strategy, risk profile and risk appetite

44

Key topics discussed at Risk Committee meetings in 2016


Key:


Approved


Areas of focus Details of key matters discussed by the Risk Committee during the year are set out on page 71 and further information about discussion of these topics at meetings is described below. In addition, pages 33 to 35 provide a summary of the principal risks faced by the Group and key mitigating actions; and an overview of emerging risks, along with recent and anticipated future developments. Further information on the Group’s approach to risk, including the associated governance framework for managing risk, stress testing and a full analysis of the principal risks are set out in the risk management section on pages 106 to 139.

FrameworksDuring the year, the Risk Committee reviewed and updated the Risk Management Framework (“RMF”) and Risk Appetite Framework (“RAF”), with risk appetite statements and risk metrics being revised and refreshed as appropriate. Proposals were approved to implement a Group Policy Management Framework (under which policies, processes and procedures will be governed) and a Models Management Framework, thereby strengthening the overarching RMF. The Stress Testing Framework was also enhanced, and the Group’s ICAAP and ILAAP were challenged and recommended to Board.

Credit riskThe Risk Committee regularly reviews the credit risk profile of the Group, with a clear focus on performance against risk appetite statements and risk metrics. During the year, the Risk Committee considered in-depth reviews of a number of asset classes including the Mortgages and Buy-To-Let exposures. A number of policies were reviewed by the Risk Committee including the Group Concentration Risk Policy, changes to portfolio level policies and the impact of these on risk appetite.

The current and future impact of emerging risks on the Group’s credit risk profile and risk appetite was a particular area of focus, with follow-up actions being agreed with management as required.

Capital and liquidity riskThe Risk Committee monitors capital and liquidity risk and receives regular reports on actual and forecast levels in relation to key RAF metrics.

During the year, the Risk Committee considered revisions to the Group’s capital risk appetite and reviewed the impact of key regulatory developments including the BCBS proposed revisions to the standardised approach to credit risk (expected to be finalised in H1 2017) and the Bank of England’s approach to minimum requirement for own funds and eligible liabilities.

The Risk Committee also reviewed changes to the approach to the management of and reporting on liquidity risks. This was strengthened by revisions to the Funds Transfer Pricing Policy (which ensures that the costs and risks of liquidity are clearly attributed to business lines) and changes to core systems and people capability which have enabled daily liquidity reporting to be enhanced.

Market riskAlthough the Group does not seek to take market risk, the Risk Committee reviewed the interest rate risk that the Group carries as part of the ICAAP review process.

Operational riskAs part of the continued development of the systems and controls in place to support the control environment, the Risk Committee approved a revised Operational Risk Management Framework in early 2016, and a detailed report on the effectiveness of that framework in October 2016.

During the year, the Risk Committee received a number of updates on operational risk matters, including the operational risk profile, and on specific areas of focus including enhancements to and the implementation of business assurance (controls) testing and the risk and control self-assessment process (by which business areas maintain a view of their risks and control effectiveness).

In terms of the operational risk profile, the Risk Committee received regular updates on business continuity, disaster recovery, cyber security and cyber risk management. Cyber security remains an important area of focus for the Group with a number of improvements delivered during 2016, driven by the Security Investment Programme. This has been complemented by an independent review of the Group’s security framework, and a revised cyber strategy for 2017 onwards.

In addition, the Risk Committee monitored the performance of key systems and significant projects, as well as noting material outsourced arrangements.



Risk Committee Reportcontinued

Compliance, conduct and financial crime riskConduct risk management continues to be a key area of focus for the Risk Committee. In addition to regular reports on performance against conduct risk metrics and developments regarding new and existing products, a deep-dive was presented to the Risk Committee which provided an overview of enhancements to and embedding of the conduct risk framework, and emerging themes.

In conjunction with the Audit Committee, the Risk Committee reviews the Group’s arrangements for anti-money laundering on an annual basis. The effectiveness of the Financial Crime Risk Framework over 2016 was also reviewed and the Risk Committee noted the significant enhancements made to key policies and procedures during the year and the strengthening of capabilities for regular monitoring of financial crime risk metrics.

Reputational riskThe Risk Committee reviewed and recommended for Board approval the Group’s Reputational Risk Policy.

Remuneration mattersThe Risk Committee has a duty to advise the Remuneration Committee regarding both the design of senior executive annual and long-term incentive plans to ensure that management are not being incentivised to take undue risks; and any risk management and control issues that have arisen that it believes should be taken into account when determining executive remuneration payments under the aforementioned plans.

In 2016, the Risk Committee reviewed regular reports from the Chief Risk Officer in relation to these matters. A full assessment of the risk appetite, risk management, governance and

control frameworks operating across the Group was undertaken, which took into account adherence to established risk appetite limits and triggers, risk events which have been raised, the findings from second line oversight reviews and any unsatisfactory reviews or material findings by Group Internal Audit. Consideration was also given to whether these areas revealed poor culture or a lack of risk and control awareness, and also whether actions to close risk issues were taken seriously and acted upon in a timely manner.

Risk Committee effectivenessThe Risk Committee undertook a review of its own effectiveness through 2016 as part of the wider Board and Committee evaluation exercise. The review took the form of an internal evaluation and was principally conducted by way of a questionnaire that was issued to all Risk Committee members.

The review covered various areas including the role and remit of the Risk Committee; the effectiveness of the Chair; the appropriateness of information provided to the Risk Committee; and the relationship with management. The Risk Committee discussed the outcome of the review in early 2017. The Risk Committee confirmed that it operated effectively and there were no significant areas for concern. Further information about the Board and Committee effectiveness process is set out on pages 56 and 57.


ContentStatement from the Remuneration Committee Chair

Annual Report on Remuneration including:

• A report on the key details of the Remuneration Committee and its work in 2016 (pages 90 and 91)

• Appendix: Remuneration Policy (pages 92 to 99)

Performance and reward outcomes for 20162016 was a remarkable year. Whilst we recognise that the macroeconomic and regulatory developments globally impacted sentiment throughout the year, it was disappointing that the share price has not performed as strongly as we had hoped given the fundamentally strong financial performance that was achieved.

However, throughout 2016 we continued to focus our efforts on serving our customers, prudent growth in assets and capital accretion, such that the year finished strongly in terms of the key financial targets:

• Profit before tax of £128.7m

• Reported return on equity of 17.2%

• Reported cost/income ratio of 46.09%

• Net loan growth of £1.3bn

In determining the pay outcomes for the financial year, the Remuneration Committee has given full consideration to all aspects of performance to ensure a clear linkage to the results.

In respect of the Executive Directors, we agreed:

• a zero level of vesting for the Pre-IPO long-term awards which were subject to a TSR performance measure ending 31 December 2016. These awards have, therefore, lapsed in full; and

• an AIP award of approximately 79.7% and 80.7% of the maximum for the CEO and CFO respectively, in keeping with the strong financial results, and combined with the achievement of the non-financial and personal performance measures within the AIP balanced scorecard. Further information on the performance against relevant targets can be found on pages 79 to 81.

Dear ShareholderOn behalf of the Board, I am pleased to present our Directors’ Remuneration Report (the “Remuneration Report”) for the year ended 31 December 2016. In addition to this statement, the report also includes our “Annual Report on Remuneration” which covers:

• How the Directors’ Remuneration Policy (the “Remuneration Policy”) was implemented in 2016 and how it will be implemented in 2017

• A report on the key details of the Remuneration Committee and its activities

• An appendix which sets out an extract from our Remuneration Policy for ease of reference

The Remuneration Policy was approved by shareholders last year at the 2016 AGM. Votes of 93.68% and 93.93% were achieved in favour of the approval of the Remuneration Policy and the advisory vote on the Annual Report on Remuneration respectively, and the Board was pleased with this strong level of support.

The Remuneration Committee has kept the Remuneration Policy under review throughout the year. We are satisfied that, as an overarching framework, our Remuneration Policy remains appropriate and continues to align remuneration with the long-term interests of our shareholders. As part of our ongoing assessment of our plans, which includes consideration of market developments, we have identified some enhancements to the operation of our annual bonus plan, the Annual Incentive Plan (“AIP”), which are set out on the next page.

Cathy TurnerChair of Remuneration Committee

We are satisfied that, as an overarching framework, our Remuneration Policy

remains appropriate and continues to align remuneration with the long-term interests of

our shareholders.”



Remuneration ReportStatement from the Remuneration Committee Chair

2017 application of Remuneration PolicyExecutive DirectorsLooking ahead to 2017, remuneration arrangements will remain largely unchanged from 2016. The Remuneration Committee agreed that it would be appropriate to award an increase in base salary to the Executive Directors which was consistent with the average level of increase of 2.5% awarded to employees across the Group generally. This increase will take effect from 1 April 2017. No changes are proposed to the levels of pension contributions (which we are pleased to report are in line with those paid to employees in the wider Group), taxable benefits or the market adjusted allowance.

In considering the AIP balanced scorecard for 2017, we have strived to ensure that bonus outcomes continue to be based on a framework that is both transparent and aligned with shareholder interests. We have concluded that our approach in this regard could be strengthened by:

• broadening the financial performance measures such that they are less weighted towards a single measure of profitability and are now more representative of our core financial KPIs. The weighting of the financial performance measures remains at 50%;

• further emphasising the link between risk performance and remuneration outcomes by increasing the weighting of the risk measures from 15% to 20%. This reflects input from our regulator, the PRA, for a more explicit approach to risk adjustment within scorecards across the industry as well as our own enterprise-wide objective of continuing to embed a robust risk framework; and

• removing the highly qualitative personal objectives target completely and increasing the weighting of the customer and people elements from 7.5% each to 20% and 10% respectively, reflecting the two critical enablers driving sustained performance. Individual performance will continue to be assessed through measuring the non-financial elements against both the overall achievement and personal contribution to those measures.

We believe that these modifications will enable us to provide shareholders with more transparent disclosures going forward on how we have assessed bonus outcomes.

No changes are proposed to either quantum or performance measures in respect of awards to be made under the Performance Share Plan (“PSP”) in 2017, and these will be made on a similar basis to 2016.

Non-Executive DirectorsFollowing the resignation of Glyn Jones as Chairman with effect from 6 February 2017, Danuta Gray, our Senior Independent Director, has assumed the role of Interim Chairman. We have agreed that Danuta’s fee will be raised to the same level as that of the previous Chairman for the period she undertakes the interim role, recognising the increased responsibilities.

Shareholder engagementWe have followed with interest external developments over the last year regarding executive remuneration, and have monitored evolving views regarding flexible remuneration structures and the use of restricted stock. In particular, we have welcomed the increasing level of support for the tailoring of remuneration arrangements to suit each company’s own culture and strategy.

We have taken the decision to widen the use of restricted stock for senior (below Board) executives from 2017 onwards as we believe that this enhances alignment of the interests of executives with the share price and, therefore, with investors, whilst also reducing overall share usage. We will review the impact of changes to our own remuneration structure and wider market developments in 2017 and beyond.

Following our listing last year, we have continued to develop our remuneration practices in line with the approved Remuneration Policy. We welcome the views of our shareholders and are committed to maintaining an open dialogue.

We hope to receive your ongoing support at our forthcoming AGM where I, along with the other members of the Remuneration Committee, look forward to answering any questions you may have on this Remuneration Report or our approach to remuneration more generally.

Cathy Turner,Chair of Remuneration Committee


IntroductionThis Annual Report on Remuneration details how the Remuneration Policy (as approved by shareholders at the 2016 AGM) was implemented in 2016, and sets out how the Remuneration Policy will be implemented in 2017.

Executive DirectorsOverview of remuneration structure (2016)

01/01/16 31/12/16 31/12/17 31/12/18 31/12/19 31/12/20 31/12/21



Remuneration ReportAnnual Report on Remuneration

At a glance: 2016 total remuneration (£’000)

Phillip Monks, Chief Executive Officer

James Mack, Chief Financial Officer

Executive Directors

1,175 8252016668(57%)

507(43%)

Single total remuneration figure (£’000) 2016

360(44%)

465(56%)

688 483

Total fixed pay

Annual bonus 2016

Long-term incentives

Total fixed pay

Annual bonus 2017

Long-term incentives

Minimum

Maximum

In line with expectations

483(34%)

484(34%)

483(100%)

97(11%)

483(55%)

304(34%)

457(32%)2,032 1,424

Minimum

Maximum

1,261 884In line with expectations

688(100%)

138(11%)

688(55%)

435(34%)

688(34%)

692(34%)

652(32%)

Annual bonus

Fixed pay

Performance Share Plan

Salary

Pension

Benefits

Assessment of performance

60% of bonus deferred into an award over shares under the Deferred Share Plan ("DSP") in March 2017, and balance paid in cash1

1/3 released from DSP on the anniversary of the date of grant over three years

Award granted in March 2016; assessment made on performance to the end of 2018

Holding period to March 2021, prior to shares being released

1 60% deferred when total variable awards exceed £500k.

At a glance: Illustrations for application of the Remuneration Policy in 2017 (£’000)

Phillip Monks, Chief Executive Officer

James Mack, Chief Financial Officer

Executive Directors

Remuneration element Implementation (for both CEO and CFO unless stated)Further information

on implementation

Base salary from 1 April 2017 CEO: £525,313 CFO: £367,719 See page 78

% increase from prior year 2.5% See page 78

Benefits Includes private medical insurance, car allowance and critical illness insurance See page 78

Market adjusted allowance 20% of base salary See page 79

Pension Cash supplement of 8% of base salary See page 79

Annual bonus - maximum opportunity as % of base salary 125% See page 82

Annual bonus - financial metrics Profit before tax (15%)Net interest margin (10%)Net loan growth (10%)Return on equity (5%)Cost/income ratio (5%)Cost of risk (5%) See page 82

Annual bonus - % vesting for threshold performance 0% See page 82

Annual bonus - non-financial metrics

Risk (20%)Customer (20%)People (10%) See page 82

Annual bonus - deferred element 60% deferred for up to 3 years1 See page 82

PSP - maximum opportunity as % of base salary 135% See page 83

PSP - performance measures Relative TSR (50%) and EPS (50%) See page 83

PSP - % vesting for threshold performance 20% See page 83

Share ownership guidelines 200% of base salary See page 88

At a glance: implementation of Remuneration Policy in 2017

1 60% deferred when total variable awards exceed £500k.

The chart to the left illustrates the potential outcomes of the Remuneration Policy for Executive Directors based on three different scenarios. The assumptions on which the scenarios are based are set out below:

Scenario Assumptions

Minimum Consists of base salary, benefits, market adjusted allowance and pension. A single year’s maximum savings under Sharesave is also assumed.

In line with expectations An on-target bonus under the AIP and a threshold level of vesting under the PSP are achieved. 1

Maximum Based on the maximum opportunity being achieved.1

1 Excluding share price appreciation and dividends.

Non-Executive Directors Fees to be paid to the Non-Executive Directors are set out on page 87. The only change to fees in 2017 (effective 1 April 2017) is an increase in the fee paid to the Chair of the Remuneration Committee (from £15k p.a. to £20k p.a.), which brings this fee into line with the fees paid to the Chairs of the Audit and Risk Committees.


Single total figure table: Executive Directors (audited)The following table sets out the total remuneration paid to the Executive Directors for the financial years ending 31 December 2016 and 31 December 2015.

Fixed elements Variable elements

Name SalaryTaxable

benefits1 Pension

Market adjusted

allowance2 SubtotalAnnual bonus3

Long-term incentives4 Subtotal Total

2016 £’000

2015 £’000

2016 £’000

2015 £’000

2016 £’000

2015 £’000

2016 £’000

2015 £’000

2016 £’000

2015 £’000

2016 £’000

2015 £’000

2016 £’000

2015 £’000

2016 £’000

2015 £’000

2016 £’000

2015 £’000

Phillip Monks 509 466 22 126 35 27 102 81 668 700 507 496 0 6,101 507 6,597 1,175 7,297

James Mack 357 348 17 44 24 21 67 43 465 456 360 351 0 721 360 1,072 825 1,528

Total 866 814 39 170 59 48 169 124 1,133 1,156 867 847 0 6,822 867 7,669 2,000 8,8251 “Taxable benefits” comprises the gross value of any benefits paid to the Director, whether in cash or in kind, that are chargeable to UK income tax. Further detail is

provided at the bottom of the page. In addition, the following items have been included under “Taxable benefits”:

- Awards made under the SIP. Consistent with other employees, a one-off award was made under the SIP to both Executive Directors following IPO in recognition of their contribution to the business. This has been valued at the share price on the date of grant (£2.41) and included in the 2015 figure. These awards vested immediately on grant and are included in the share interests table on page 88.

- The write-off of loans to Phillip Monks and James Mack of £108,317 and £31,279 respectively in 2015. These loans were made originally to settle the tax payable by each of the Directors in respect of equity incentives awarded to them prior to the IPO.

- Participation by Phillip Monks and James Mack in the Sharesave Plan. Where the average share price over Q4 in the year of grant is higher than the option price, participation is included under “Taxable benefits”. On this basis, participation in the 2016 invitation is included above. Further detail can be found on page 85.

2 The “Market adjusted allowance” became payable following IPO.3 The “Annual bonus” figure represents the value of the total bonus. A proportion of the bonus will be deferred into shares under the DSP. 60% of the bonus earned in

respect of 2016 will be deferred. For 2015, this was at a blended rate based on 15% being deferred into shares for the part of the bonus earned in the period up to IPO, and 60% being deferred into shares for the part of the bonus earned for the period following IPO. See page 79 for detail on the bonus outcome.

4 The Directors held certain shares pre-IPO which converted into ordinary shares on IPO. The reported gains have been calculated on the market value of shares held at IPO (£1.92) less the actual cost of any shares bought pre-IPO, regardless of whether such shares were acquired as an investment or an incentive, and included in the 2015 figure. As part of the IPO, the Directors were subject to certain lock-up arrangements in respect of their shares, as set out in the IPO Prospectus. The lock-up in respect of two-thirds of each Director’s holding expired on the first anniversary of the IPO, whilst the remaining one-third expired on the second anniversary of the IPO.

Fixed pay for Executive DirectorsBase salaryThe Remuneration Committee considered benchmarking data in respect of the base salaries of the Executive Directors, and determined that the increases set out in the table below were appropriate. The increases, which will take effect from 1 April 2017, are in line with the Remuneration Policy and are consistent with the average level of increase of 2.5% awarded to employees in the Group generally.

At 1 April 2017 % increase At 1 April 2016

Phillip Monks £525,313 2.5% £512,500James Mack £367,719 2.5% £358,750

Taxable benefitsThe taxable benefits received by the Executive Directors in 2016 included private medical insurance (family cover), a car allowance and critical illness insurance.

No changes to taxable benefits are proposed to be made during 2017.



Remuneration ReportAnnual Report on Remunerationcontinued

Market adjusted allowanceThe market adjusted allowance is calculated as a percentage of base salary. As reported last year, with effect from 1 April 2016 the level paid to the CFO was increased from 15% to 20%, aligning it with that paid to the CEO. Further information on the market adjusted allowance can be found in the Remuneration Policy table on page 94.

No changes to the market adjusted allowance are proposed in 2017.

PensionsPension contributions for the Executive Directors are paid at a rate of 8%, consistent with employees in the Group generally. This may be paid into a personal pension arrangement or paid as a cash supplement (reduced for the impact of employers’ NICs). Throughout 2016, the CEO chose to receive a cash supplement. Prior to 1 April 2016, a contribution of 6% was paid into a stakeholder pension for the CFO (maintained at 6% in line with the CFO’s wishes). As reported last year, with effect from 1 April 2016, the CFO elected to be paid a cash supplement of 8% (less employers’ NICs) and he ceased to receive contributions into a stakeholder pension.

The Company does not intend to make any changes to pension contributions in 2017.

Annual Incentive Plan (“AIP”)2016 AIP outturnThe AIP is based on a balanced scorecard of financial, non-financial and personal measures. The Remuneration Committee sets stretching performance targets at the start of the performance period. Whilst the performance of each element is assessed against the targets at the end of the performance period, the Remuneration Committee also considers total bonus outcomes within the context of both the Company’s overall performance and personal performance to ensure that they are fair.

The table below sets out the performance measures and outcomes for the 2016 AIP. The maximum bonus opportunity for both the CEO and the CFO was 125% of base salary. The actual percentage of the maximum bonus awarded was 79.7% for the CEO and 80.7% for the CFO.

2016 AIP: performance assessment

Phillip Monks James Mack

Measures Weighting (%) Actual (%) Weighting (%) Actual (%)

Financial 50 35.9 50 36.2

Risk 15 11.3 15 12

Customer 7.5 7.5 7.5 7.5

People 7.5 5 7.5 6

Strategic/personal 20 20 20 19

Total 100 79.7 100 80.7

Based on the assessment of the performance measures above, actual bonuses paid to the Executive Directors are set out below. 60% of the bonus awarded will be deferred into shares and held under the DSP. The deferred element of the bonus will take the form of a nil-cost option award, which will become exercisable by the Directors in equal amounts over the three years following the award, subject to continued employment and malus and clawback provisions. The number of shares to be awarded will be based on the Company’s average share price over the three-day period prior to grant and will be disclosed in the 2017 Annual Report and Accounts.

Bonuses payable to Executive Directors

Name Cash (£) Shares (£) Total (£)

Bonus as % of base salary (as

at 31 December 2016)

Phillip Monks 202,875 304,313 507,188 99.0

James Mack 143,915 215,871 359,786 100.3Bonuses are calculated by multiplying earnings in the financial year by the maximum bonus potential and the percentage bonus awarded.


For financial and treasury measures, 0% and 100% of maximum opportunity was available for achievement of threshold and maximum performances respectively, with a sliding scale being applied between each point and the target level (at which point two-thirds of the maximum was payable). The financial targets are set out in the table below:

2016 AIP: financial performance measures and outcomes

Performance measures

Threshold(0% of

maximum)

Target(66.6% of

maximum)Maximum

(100%) ActualCEO

weighting CFO

weighting % of max achieved

CEO and CFO

Profit before tax £116.7m £123.1m £136.1m £128.7m 20% 16% 81

Return on equity (reported) 15.64% 16.51% 18.25% 17.2% 20% 16% 80

Cost/income ratio (reported) 49.53% 47.28% 42.77% 46.09% 5% 4% 76

Net loan growth £1,455m £1,536m £1,698m £1,333m 5% 4% 0

CFO only

Spread over LIBOR % – Cash -0.21% -0.22% -0.24% -0.29% N/A 2.5% 0

Spread over LIBOR % – Liquidity Asset Buffer 0.040% 0.042% 0.047% 0.49% N/A 2.5% 100

Wholesale stock cost of funds % -0.92% -0.88% -0.80% -0.51% N/A 5% 100

The Remuneration Committee assesses the non-financial elements by way of both internal, quantifiable targets and a broader qualitative assessment having sought appropriate input from the Chief Risk Officer, the Group Marketing Director and the Group HR Director in respect of the risk, customer and people elements respectively. The key performance outcomes which were taken into account in agreeing the outcomes were as follows:

2016 AIP: non-financial performance measures and outcomes

% of maximum

Performance metric Outcomes

Phillip Monks

James Mack

Risk • A full assessment of the risk appetite, risk management, governance and control frameworks operating across the Group was undertaken by the Chief Risk Officer and discussed with the Risk Committee before formal presentation to the Remuneration Committee. This included adherence to established risk appetite limits and triggers, risk events and findings raised in the course of reviews by second-line risk teams and the Group Internal Audit function. Consideration was also given to risk culture and risk awareness.

• Overall, it was recognised that the risk performance met expectations when measured against existing risk appetite and metrics, the operating environment and the current maturity of the organisation. Both the CEO and the CFO (in conjunction with the Executive team) had been strong advocates of setting the ‘tone from the top’, and a transparent and open culture was promoted. This had manifested itself in general trends of risk events being raised proactively and in a timely manner; management responsiveness to risk issues; and, consequently, appropriate resolution.

75% 80%

Customer • The overarching goal for remuneration purposes was to ‘put the customer at the heart of everything we do’. This objective was an assessment which included both numeric and more behavioural assessment.

• NPS, or Net Promoter Score, is a customer loyalty metric which is widely used across a number of industries, and is one of the key performance indicators of the Group’s strategic objective to be customer-driven (see pages 14 and 36 for more information). In 2016, the customer NPS improved by +14 which was well ahead of the target for the year. The Remuneration Committee also took into account the CFO’s leadership of the Savings business, where a strong performance resulted in the increase in the Savings NPS score exceeding the target set for 2016.

• The ‘Voice of the Customer’ programme was launched to enable the Group to collect customer feedback in real time and respond to it. The programme was championed by the Executive Directors.

• Other indicators of customer views were also considered, for example customer complaints, which were maintained within accepted tolerances, and upheld rates, which remained below industry averages.

100% 100%




% of maximum

Performance metric Outcomes

Phillip Monks

James Mack

People • The ‘Big Conversation’ programme was launched, in part to replace the ‘Best Companies to Work For’ survey as the principal means of evaluating employee engagement and to provide more meaningful insights from people. This has enabled richer feedback to be obtained from employees, with a view to better connecting culture with strategy.

• Employee engagement is a key performance indicator of the Group’s strategic objective to deliver simply. Whilst the mechanism for measuring employee engagement changed in 2016 in line with the ‘Big Conversation’ approach and was not directly comparable to previous years, the Remuneration Committee noted that internal engagement surveys had confirmed a strong level of employee connection to Aldermore.

• Senior management succession planning is continuing to evolve and the mapping of current and future talent requirements has developed further during the year. This translated into the movement of a number of employees into roles that will enable them to broaden their skills and experience, with a view to stepping up in to a more senior role in due course. In addition, development plans were formalised for the senior management team.

• Internal management development programmes continue to be promoted, and strong sponsorship and support from the Executive Committee has been instrumental in the programmes resulting in internal promotions. During 2016, the CFO sponsored the Group’s main internal development programme (the ‘Next Generation Leaders’ programme).

67% 80%

The targets for the risk customer and people measures are internal to the Group and commercially sensitive, and are likely to remain so. They are not, therefore, disclosed.

The Executive Directors’ personal objectives are focused on the delivery of the Group’s strategy and, in the case of the CFO, the continued evolution of the Finance functions falling within his remit. Following consideration of achievements against the objectives which were set at the beginning of 2016, the Remuneration Committee’s view was that both the CEO and the CFO had performed strongly against all of their objectives and confirmed that awards of 100% and 95% of maximum respectively should be made. Examples of achievements against personal objectives are set out below:

2016 AIP: personal objectivesAchievements

Phillip Monks

• A significant year of macroeconomic uncertainty and regulatory developments demanded a more flexible approach to planning, which has been driven by the CEO. A re-articulation of the Group’s strategy has led to a renewed focus on three strategic priorities as detailed on page 14.

• During the year, the Executive Committee was strengthened through the appointment of three new members who bring a wealth of experience in their respective fields and who will each help drive the business forward.

• The CEO has supported the delivery of key strategic projects. This included upgrades to two of the Group's core customer platforms.

James Mack

• The CFO oversaw delivery of the project to raise £60m additional Tier 2 capital in October 2016, thereby strengthening the balance sheet.

• A strong performance was delivered across Financial Planning, Financial Control and Capital Management with improvements made to internal structures and resources to provide improved insight and an enhanced control environment to support business decisions.

• Under the leadership of the CFO, it has been a strong year for the Treasury function. A new asset/liability management system has been implemented with improved reporting and analysis capabilities to drive business performance in areas such as cashflow forecasting.


2017 AIPAs set out in the statement from the Remuneration Committee Chair (on page 75), the Remuneration Committee has reviewed the balanced scorecard of performance measures to apply for the 2017 performance year. Whilst retaining the broad overall split between financial and non-financial performance measures, some changes to the underlying performance measures and weightings were agreed and, as a result, the balanced scorecard will be structured as set out below.

A key driver of the changes to the underlying performance metrics is to ensure that they are more representative of our core KPIs, thereby strengthening the link between pay and performance. The alignment of the performance metrics with our KPIs is shown below, whilst further information on the KPIs can be found on page 15.

2017 AIP: performance measures (CEO and CFO)

Financial measures Core KPI Performance weighting

Profit before tax Profit before tax 15%

Net interest margin Profit before tax 10%

Net loan growth Net loans 10%

Return on equity CET1 ratio 5%

Cost/income ratio Cost/income ratio 5%

Cost of risk Cost of risk 5%

Non-financial measures

Risk – 20%

Customer – 20%

People – 10%

The Remuneration Committee has set stretching financial targets against budget, and has agreed a suite of underlying metrics in respect of the non-financial performance measures. An evaluation of each Director’s individual performance against the relevant overarching enterprise-wide objective will also be taken into account in assessing the outturn of the non-financial measures.

The targets are currently commercially sensitive but will be disclosed in the 2017 Annual Report and Accounts on a similar basis to those for 2016 in this report.

Long-term incentivesPSP: Awards made in 2016During the year, awards were granted to the Executive Directors under the PSP (in the form of nil-cost options) with a face value at the time of the award of 135% of base salary. Full details of the awards made are included on page 84.

Half of each award is subject to a relative Total Shareholder Return ("TSR") condition whilst the other half of the award is subject to the achievement of Earnings Per Share ("EPS") targets. Both performance conditions are measured over performance periods which end on 31 December 2018. Details of the performance measures and targets are set out on the next page.




2016 PSP: performance measuresRelative TSRGrowth in TSR will be measured against a comparator group comprising the companies making up the FTSE 350 (excluding Investment Trusts and the Company itself). It is measured from 1 January 2016 (using the Company’s one-month average immediately prior to 1 January 2016 as the start point) to the end of 2018 (using the Company’s one-month average to 31 December 2018 as the end point). The Remuneration Committee selected relative TSR as a performance measure as it is a key indicator of returns to investors, thereby aligning interests of the Executive Directors with those of shareholders. The Remuneration Committee believes that the FTSE 350 is the most appropriate comparator group as it is more reflective of market performance than a single market grouping or a comparator group of competitors. Details of the targets for relative TSR are set out below:

Ranking % of award which vests

Below median 0%

Median 10%

Between median and upper quartile On a straight line basis between 10% and 50%

Upper quartile or above 50%

EPSEPS will be measured using adjusted undiluted EPS. The Remuneration Committee selected EPS as a performance measure as it is a key internal measure of profitability. Details of the targets for EPS are set out below:

Target % of award which vests

Below 30p 0%

30p 10%

Between 30p and 37p On a straight line basis between 10% and 50%

37p or above 50%

In order to satisfy itself that the vesting of any awards is appropriate, the Remuneration Committee has set additional underpin performance conditions which must be met. For both performance measures, the result achieved must appropriately reflect the performance of the Company taking into account such factors as the Remuneration Committee considers appropriate; and the result achieved must be consistent with the Company’s risk appetite. Additionally, in respect of TSR, the Remuneration Committee must be satisfied that the Company’s achieved TSR is reflective of the Company’s underlying financial performance.

PSP: Pre-IPO Awards vesting outcomeThe Pre-IPO Awards granted to the Executive Directors at IPO were subject to a performance period which ended on 31 December 2016. In order to achieve a threshold level of vesting, growth of at least 20% p.a. in absolute TSR was required. At the end of the performance period, the Remuneration Committee assessed TSR performance over the performance period and determined that the minimum level of performance had not been met. The Pre-IPO Awards therefore lapsed in full.

PSP: Awards to be made in the current year (2017)In 2017, the Remuneration Committee intends to make PSP awards to Phillip Monks and James Mack with a face value (at the time of the award) of 135% of base salary. The awards will be made on the same basis as in 2016.

On that basis, half of the award will be subject to a relative TSR condition with 20% of that part vesting at median versus the constituents of the FTSE 350 (excluding Investment Trusts and the Company itself) rising to full vesting of that part for upper quartile performance. The other half of the award will again be subject to an EPS scale with 20% of that part vesting at an EPS of 33p rising to full vesting of that part for an EPS of 41p. In both cases, the same underpins will apply as for the 2016 PSP awards.


Scheme interestsThe Directors hold the scheme interests noted below:

Executive share plan participation

Type of awardDate of

grant

No of shares under award (01/01/16)1

Granted during

2016

Vested during

2016

Lapsed during 20162

No of shares

under award (31/12/16)

Face value3

% vesting at

threshold4, 5Performance

measuresPerformance

period endsHolding

period ends

Phillip Monks

PSP Award (nil-cost option)6

02/03/15 351,562 – – – 351,562 £674,999 10%

50% based on absolute TSR

50% based on EPS

31/12/17 02/03/20

Pre-IPO Award (conditional award)

02/03/15 684,163 – – 684,163 – £1,313,593 20%100% based on

absolute TSR31/12/16 N/A

DSP Award (nil-cost option)6 21/03/16 – 111,784 – – 111,784 £254,566 N/A N/A N/A

21/03/17, 21/03/18

and 21/03/19 in relation to

tranches of 1/3 of the award


21/03/16 – 296,403 – – 296,403 £674,999 10%

50% based on relative TSR

50% based on EPS

31/12/18 21/03/21

James Mack


02/03/15 218,750 – – – 218,750 £420,000 10%

50% based on absolute TSR

50% based on EPS

31/12/17 02/03/20

Pre-IPO Award (conditional award)

02/03/15 613,828 – – 613,828 – £1,178,550 20%100% based on

absolute TSR31/12/16 N/A

DSP Award (nil-cost option)6 21/03/16 – 79,179 – – 79,179 £180,314 N/A N/A N/A

21/03/17, 21/03/18

and 21/03/19 in relation to

tranches of 1/3 of the award


21/03/16 – 207,482 – – 207,482 £472,499 10%

50% based on relative TSR

50% based on EPS

31/12/18 21/03/21

1 Shows the maximum number of shares that could be received, before any dividend equivalents, if the awards vested in full.2 Performance was assessed following the end of the performance period and it was determined that the minimum level of performance had not been achieved.3 Face value for awards made in 2015 was calculated using the final offer price of the Company’s shares at IPO (192p). For awards made in 2016, the average middle

market quotation over the three-day period 16-18 March 2016 (227.73p) was used to calculate face value. The relevant price was multiplied by the maximum number of shares that would vest if all performance measures and targets were met in full. Actual value at vesting will depend on actual share price at the time of vesting, and any dividend equivalents (if any) payable on vested shares.

4 Assumes that either the TSR or EPS performance measure threshold is met in respect of one half of the PSP award, and that the other half of the award lapses.5 Vesting is also subject to underpin performance conditions. Further detail on performance conditions is provided at page 83.6 Nil-cost options lapse ten years after the date of grant to the extent not previously exercised.




10 March 2015

Aldermore

90

95

100

105

110

115

120

125

31 December 2015 31 December 2016

FTSE 350 excluding Investment Trusts

Total Shareholder Return index

All-employee share plansExecutive Directors are invited to participate in all-employee share plans on the same basis as other Group employees. The purpose of these plans is to encourage share ownership by employees, thereby allowing them to share in the long-term success of the Group and align their interests with those of shareholders. The plans are operated within the maximum participation levels permitted under HMRC regulations from time to time. The Company has established both a Sharesave and a Share Incentive Plan (“SIP”). Details of the participation by the Executive Directors in the Sharesave Plan are set out below:

Performance graphThis graph compares the Total Shareholder Return of £100 invested in the Company’s shares and £100 invested in the FTSE 350 (excluding Investment Trusts). The comparison is made between the date of the IPO and 31 December 2016. This index was selected as the Company has been a member of the FTSE 350 since June 2015 and it provides a widely published and broad equity index.

1 Share price on the date of grant for the 2015 and 2016 invitations was 262p and 173.5p respectively.

The SIP was used as a vehicle to award free shares to employees following IPO in recognition of their contribution to the business. Awards of between £200 and £1k were made, based on length of service. The awards vested immediately on grant and are included in the share interests table on page 88.

Sharesave participation

Type of award Date of grantNo of shares under option

Lapsed during 2016

Balance (31/12/16)

Option price (p)

Performance conditions

Normal exercise period

Market value at date of grant (£)1

Phillip Monks

Sharesave (option) 29/10/15 7,142 7,142 – 252 N/A01/02/19–

31/07/19 18,712

Sharesave (option) 12/10/16 11,688 – 11,688 154 N/A01/12/19–

30/05/20 20,279

James Mack

Sharesave (option) 12/10/16 11,688 – 11,688 154 N/A01/12/19–

30/05/20 20,279


Relative importance of spend on pay

2016 2015

Total employee remuneration (£m) 64.3 62.1

Total shareholder distributions (£m) 0 0

Relative importance of spend on payThe table to the right compares the total remuneration paid in respect of all employees of the Group in 2015 and 2016, and distributions made to shareholders in the same years.

No dividend distributions or share buybacks were made to shareholders in 2015 or 2016 as the Company applied all its retained profits to support the growth of the business.

CEO relative pay

2015/16 % change

Salary Taxable benefits Annual bonus

CEO1 9.3% 3.3% 2 2.4%

Average employee 4.1% 14.1% -4.5%

Median employee 2.6% 0% -4.8%1 The percentage change in the CEO’s pay reflects the restructuring of the CEO’s remuneration arrangements

at IPO.2 The percentage change in the CEO’s taxable benefits excludes the one-off write-off of a loan of £108,317

in 2015. The loan was made originally to settle tax payable in respect of equity incentives awarded to Phillip Monks prior to the IPO.

CEO relative payThe table to the right shows the percentage change in the salary, taxable benefits and annual bonus of the CEO between 2015 and 2016. A comparison is provided against the average percentage change in respect of the Group’s employees taken as a whole. A comparison against the median percentage change is also provided as this is more reflective of actual changes in remuneration.

Total remuneration tableThe table to the right shows the total remuneration figure for the CEO in 2015 and 2016. This includes any short-term and long-term incentives.

CEO remuneration

2016 2015

Single total figure of remuneration (£’000) 1,175 7,297

Annual bonus (as a % of maximum) 80.7% 87.3%

Vested long-term incentives (as a % of maximum)1 0 N/A1 No PSP awards vested in 2015 or 2016. See footnote 4 to the single total figure table (page 78) for further

detail on gains on shares held pre-IPO.




Non-Executive DirectorsNon-Executive Directors’ feesThe Chairman and Non-Executive Directors are paid a basic fee, whilst the Non-Executive Directors may receive further fees to reflect Board Committee or additional responsibilities.

The current fee structure was agreed at the time that the Board was put together in preparation for IPO on the basis of a benchmarking exercise against financial services companies of a similar size. The fees are reviewed by the Board (in the case of the Non-Executive Directors) and the Remuneration Committee (in the case of the Chairman) on an annual basis. The most recent review concluded that, with the exception of the fee paid to the Chair of the Remuneration Committee, the fees remained appropriate, and no increases would be made in 2017. With effect from 1 April 2017, the fee paid to the Chair of the Remuneration Committee will be brought into line with that paid to the Chairs of the Audit and Risk Committees (£20k p.a.).

Current fees are set out below:

Non-Executive Directors’ FeesRole £ (p.a.)

Chairman 180,000Non-Executive Director 65,000Senior Independent Director 20,000Chair of Audit Committee 20,000Chair of Remuneration Committee 15,000Chair of Risk Committee 20,000Membership (other than chairmanship) of the Audit, Remuneration and Risk Committees 5,000

Single total figure table: Non-Executive Directors (audited)The following table sets out the total remuneration paid to the Non-Executive Directors for the financial years ending 31 December 2016 and 31 December 2015.

Fees1 Taxable benefits2 Long-term incentives Total

Appointment date (if later than

1 January 2015)

Resignation date (if earlier than

31 December 2016)2016

£’0002015

£’0002016

£’0002015

£’0002016

£’0002015

£’0002016

£’0002015

£’000

Glyn Jones 180 174 - - - 9603 180 1,134Peter Cartwright4 18/04/16 21 57 - - - - 21 57Neil Cochrane4 14/10/16 53 53 - - - - 53 53Danuta Gray 90 100 1 2 - - 91 102John Hitchins 90 100 - - - - 90 100Chris Patrick4 21/11/16 8 - - - - - 8 - Robert Sharpe 29/06/15 75 38 - - - - 75 38Peter Shaw 95 103 3 4 - - 98 107Chris Stamper 75 85 1 1 - - 76 86Cathy Turner 80 90 - - - - 80 90Total 767 800 5 7 - 960 772 1,7671 The fees paid to the Non-Executive Directors relate to the period for which they held office.2 “Taxable benefits” includes the tax liability due on travel expenses. The figures disclosed in the 2015 Annual Report and Accounts were an estimate of the amount due,

and the 2015 figures above have therefore been restated to reflect actual amounts paid.3 The gain on Glyn Jones’ personal investment in certain shares prior to IPO has been included within 2015 remuneration under “Long-term incentives” (calculated

at the market value of shares held at IPO (£1.92) less the original cost of his personal investment). Such shares were not part of an incentive subject to any form of performance hurdles and his only ongoing financial interest in the performance of the Company is as an ordinary shareholder.

4 Peter Cartwright, Neil Cochrane and Chris Patrick were all appointed to represent the Company’s Principal Shareholders, and their fees are paid directly to these entities. Further information on the relationship with the Principal Shareholders can be found in Note 41 to the financial statements (related parties).


OtherShareholdingsIn order to further align the interests of Executive Directors with those of shareholders, the Company has implemented share ownership guidelines. The guidelines require the Executive Directors to build up a specified level of shareholding (expressed as a percentage of base salary) within five years of the guidelines being implemented (or within five years of appointment, if later).

The required level of shareholding is 200% of base salary, using the current share price from time to time, for each of the Executive Directors. Under the guidelines, the Executive Directors are expected to retain all of the ordinary shares vesting under any of the employee share plans, after any disposals for the payment of applicable taxes and any acquisition costs, until they have achieved the required level of shareholding. Vested awards not subject to any performance condition (but subject to a holding period) count as ownership towards the guidelines after deducting the tax which would be due if the shares were released on that date. The guidelines also prohibit the Executive Directors from hedging (or offering as collateral) any shares which are unvested or unexercised under any employee share plans, and any shares which count towards meeting the guidelines.

Other shares owned by Executive Directors and their connected persons also count towards the share ownership guidelines. Both Executive Directors have met the guideline levels.

Details of the Executive Directors’ beneficial interests (and their connected persons) in the Company’s shares as at 31 December 2016 are set out below:

Executive Directors’ shareholdings (audited)

Name

Shareholding as at

31 December 2016

Shareholding as at

31 December 2015

Share ownership guideline

(% of base salary)Current holding

(% of base salary)1

Share awards/options (subject

to performance/service

conditions)2

Options (not subject to

performance/service

conditions)2

Phillip Monks 3,462,693 3,462,693 200% 1,600% 759,749 11,688

James Mack 436,659 436,659 200% 288% 505,411 11,6881 Current holding measured by reference to the middle market quotation of the Company’s share price on 31 December 2016 (236.8p) and as a percentage of base salary

at 31 December 2016.2 Awards which have not yet vested do not count towards compliance with the share ownership guidelines.3 There have not been any changes to Directors’ shareholdings between the end of the financial year and the date that this Remuneration Report was signed.

The beneficial interests of the Non-Executive Directors (and their connected persons) in the Company’s shares as at 31 December 2016 is set out below:

Non-Executive Directors’ shareholdings (audited)

Director

Shareholding as at

31 December 2016

Shareholdingas at

31 December 2015

Glyn Jones 881,488 781,488

Peter Cartwright1, 2 – –

Neil Cochrane1, 2 – –

Danuta Gray – –

John Hitchins 20,000 20,000

Chris Patrick1 – –

Robert Sharpe – –

Peter Shaw – –

Chris Stamper 9,500 9,500

Cathy Turner 42,336 42,3361 Appointed to act as a Director by the Principal Shareholders, whose interest in the Company’s shares is set out on page 104.2 Shareholding disclosed as at 31 December 2015 and date of resignation.3 There have not been any changes to Directors’ shareholdings between the end of the financial year and the date that this Remuneration Report was signed.




Payments to past Directors and loss of office payments (audited)There were no payments made during the year to any person who was not a Director of the Company at the time the payment was made, but had previously been a Director. There were also no payments for loss of office made during the year.

External appointmentsThe Company’s policy is that Executive Directors may hold one external non-executive directorship, subject to prior approval by the Company. Neither of the Executive Directors hold any external directorships at the current time.

Employee share trustThe Company has established the Aldermore Group PLC Employees’ Share Trust (the “Trust”), a discretionary share trust, for the purpose of facilitating the operation of the Company’s share plans. It is the Company’s current intention to satisfy any vested share awards by the allotment of new shares to the Trust.

DilutionAs noted above, the Company intends to issue new shares to satisfy awards outstanding under employee share plans, and will implement these arrangements in accordance with the Investment Association Guidelines on dilution. Based on the number of awards outstanding as at 31 December 2016, the levels of dilution, which are within the dilution limits set by the Investment Association, are as set out in the table below. For the purpose of these calculations, executive awards granted prior to IPO are excluded in accordance with the relevant plan rules and as disclosed in the IPO Prospectus.

Dilution

Plan

% of the Company’s issued

share capital

Investment Association

dilution limit (%)

All share plans 1.15% 10

Executive share plans 0.65% 5


Remuneration Committee at a glance

• The Remuneration Committee is currently composed of three Independent Non-Executive Directors and the Company Chairman, which meets with Code requirements:

- Cathy Turner (Chair), Independent Non-Executive Director

- Danuta Gray, Interim Chairman1


• Glyn Jones was also a member of the Remuneration Committee throughout 2016 until his resignation as Company Chairman with effect from 6 February 2017

• Regular attendees at meetings of the Remuneration Committee include the CEO, Group HR Director, Company Secretary and FIT Remuneration Consultants LLP (who provide independent remuneration consultancy services)

• The Remuneration Committee’s key role is to set the remuneration policy and individual terms for the Executive Directors, Chairman and other members of the senior management team

• Remuneration for the Non-Executive Directors is determined by the Board of Directors

• No person participates in any discussion relating to their own remuneration

• The Remuneration Committee’s terms of reference are reviewed annually and are available at www.investors.aldermore.co.uk

1 It is anticipated that, once appointed, the new Company Chairman will join the Committee as a member. Danuta Gray will remain a member in her capacity as Senior Independent Director.

Committee effectiveness The Remuneration Committee undertook a review of its own effectiveness through 2016 as part of the wider Board and Committee evaluation exercise. The review took the form of an internal evaluation and was conducted principally by way of a questionnaire that was issued to all Remuneration Committee members.

The review covered various areas including the role and remit of the Remuneration Committee; the effectiveness of the Chair; the appropriateness of information provided to the Remuneration Committee; and the relationship with management. The Remuneration Committee discussed the outcome of the review in 2017. The Remuneration Committee confirmed that it operated effectively and that there were no significant areas for concern. Further information about the Board and Committee effectiveness process is set out on pages 56 and 57.

Remuneration Committee External advisersIn April 2014, the Remuneration Committee engaged FIT Remuneration Consultants LLP (“FIT”) for the provision of independent remuneration advisory services following a competitive tender process. FIT does not provide any other services to the Group. FIT is a member of the Remuneration Consultants Group and adheres to its code of conduct. The Remuneration Committee reviews the effectiveness of its adviser on an annual basis, and remains satisfied that the advice that it has received from FIT during the year has been objective and independent. Total fees paid to FIT during the year amounted to £126.5k, which was charged on its normal terms.

Statement of voting at the Annual General MeetingThe results of the shareholder votes at the Company’s 2016 AGM on the Remuneration Policy and the 2015 Annual Report on Remuneration are as below:

Votes for Votes against Votes withheld

Directors' Remuneration Policy 93.68% 6.32% 3,567,454

Annual Report on Remuneration 93.93% 6.07% 3,604,881

The Remuneration Committee was pleased with the strong level of support in favour of these resolutions.




Responsibilities of the Remuneration Committee

• Setting remuneration policy for Executive Directors and senior management, and making recommendations to the Board on overall remuneration costs

• Determining individual remuneration arrangements for the Executive Directors, senior management and other staff falling within the remit of the FCA and PRA Remuneration Codes (“Identified Staff”)

• Approving the Chairman’s remuneration

• Reviewing pay and bonus allocations across the wider Group

• Reviewing the design of performance-related incentive schemes for recommendation to the Board. Once in place, agreeing targets and assessing the outcomes

• Reviewing recruitment and termination arrangements for Executive Directors, senior management and Identified Staff

• Engaging with shareholders on remuneration-related matters

Governance • Compliance with share ownership guidelines and anti-hedging policy

• Annual programme of items for Remuneration Committee meetings in 2017

• Annual review of Remuneration Committee effectiveness

• Annual review of the effectiveness of the Committee's remuneration adviser

• Annual reporting, including Remuneration Report and Pillar 3 disclosures

Individual remuneration arrangements

• Annual review of the Chairman's remuneration

• Bonus outturn, awards to be made, and fixed pay for all employees falling within the Remuneration Committee's remit

Performance -related incentive schemes

• 2015 AIP outturn

• Performance measures and targets in relation to awards under the 2016 AIP

• Parameters and quantum of awards to be made under the PSP and RSP in 2016

• Regular review of performance under performance-related incentive schemes, including the operation of business incentive plans within the divisions

• Vesting of the Pre-IPO Awards

Regulatory matters

• Impact of EU Market Abuse Regulation on share plan awards and vestings

• Preliminary view of the outcome of reporting under gender pay gap regulations

Remuneration arrangements in wider Group

• 2016 payouts under the all-employee bonus scheme, and confirmation of 2017 budget

• 2016 salary review

• 2016 Sharesave invitation

• Review of benefits across the Group

• Renewals of health insurance policies

Setting remuneration policy

• Annual review of the Directors' Remuneration Policy

• Guidelines for the application of Remuneration Policy for leavers

In addition, regular reports included updates on changes to Identified Staff, treatment of joiners and leavers (in accordance with delegated authorities), and consideration of market and regulatory updates.

The Remuneration Report was approved by the Board of Directors on 1 March 2017 and signed on its behalf by:

Time spent in 2016

%

Governance 21Individual remuneration arrangements

24

Performance-related incentive schemes

29

Regulatory matters 7Remuneration arrangements in wider Group

13

Setting remuneration policy

6

Key topics discussed at Remuneration Committee meetings in 2016


Key:


Approved

Cathy Turner,Chair of Remuneration Committee


IntroductionFor ease of reference, this appendix sets out an extract of our Remuneration Policy, which was approved by shareholders at the 2016 AGM held on 17 May 2016 and took effect from that date. It is intended that the Remuneration Policy will operate until the 2019 AGM unless any significant changes are proposed in the interim. No changes are proposed to the Remuneration Policy this year, and a shareholder vote on it will not therefore be required at the 2017 AGM.

The full Remuneration Policy, as approved by shareholders, can be found on pages 95 to 103 of the 2015 Annual Report and Accounts on the Company’s website at www.investors.aldermore.co.uk

The Remuneration Policy is based on the following key principles:

Aligned to the long-term success of the GroupThe remuneration framework is structured to align remuneration, and in particular performance-related remuneration, with the long-term interests of shareholders. Incentive plans should be designed such that they do not encourage excessive risk-taking.

Competitive but not excessiveThe Group recognises that its long-term success is closely linked to its ability to attract and retain high-calibre individuals who can drive the delivery of its business strategy. However, this should be balanced with ensuring that remuneration is appropriate to the role, responsibilities, experience and performance of the individual, and is not excessive.

Appropriate and balanced proportion of variable payTotal remuneration should balance both fixed and variable elements, whilst variable pay should be balanced between both short-term and long-term incentives with an emphasis on achieving sustainable business results.

Simplicity and transparency in the design and communicationThe key to an effective remuneration structure is that the link between incentives and performance is clear, well-communicated and easily understood.

To see how the Remuneration Policy was implemented in 2016, please refer to the Annual Report on Remuneration on pages 76 to 89.



Remuneration Report AppendixRemuneration Policy

Future policy tableExecutive Directors’ fixed pay

Element and purpose Policy and operation MaximumPerformance measures

Committee flexibility

Base salary

To provide a fair level of fixed pay which reflects the individual’s experience and contribution

To attract and retain the high-calibre individuals necessary to deliver the Group’s strategy

Typically paid monthly in cash and reviewed annually

The annual review takes into account various factors including:

• corporate and individual performance

• any change in an individual’s role and responsibilities

• market benchmarking

• average pay increases awarded across the Group as a whole

Market benchmarking primarily takes into account pan-sector companies of a similar market capitalisation rather than looking at companies solely within the financial services sector. However, the Remuneration Committee may also consider more specific data and uses all data as a reference point in considering, in its judgement, the appropriate level of salary

Although an annual review of salaries is normally undertaken, the Remuneration Committee will not automatically award an increase

The Remuneration Committee may freeze salaries with consequently larger increases as and when an increase is awarded

Increases will normally be in line with the average increases for staff

The maximum salary increase which the Remuneration Committee may award will not result in the base salary exceeding 110% of median data for an equivalent role within a comparator group of companies (the 20 companies listed on the London Stock Exchange above and below the Company by market capitalisation)

Not applicable

Base salary increases will be awarded at the Remuneration Committee’s discretion, taking into account the factors listed

Benefits

To provide market-competitive benefits as part of an overall package which attracts and retains Executive Directors

A range of benefits is provided, which includes:

• car allowance

• private medical insurance (family cover)

• life assurance

• income protection

• critical illness insurance

Certain costs relating to Executive Director relocations will be met where appropriate

Benefits will not exceed 15% of an Executive Director’s base salary on an annual basis (plus a further 100% in the case of a Director who has been relocated)

As premiums are not taxable as benefits in kind, the following caps apply to life assurance and income protection:

• life assurance: up to 8 times salary, although currently capped at 4 times salary

• income protection: up to 75% of salary

The value of such benefits is outside of the above cap

The Remuneration Committee will monitor the costs in practice and ensure that the overall costs do not increase by more than it considers appropriate in all circumstances

Not applicable

The Remuneration Committee reserves the discretion to introduce new benefits as appropriate


Element and purpose Policy and operation MaximumPerformance measures

Committee flexibility

Pension

To enable Executive Directors to build long-term savings for retirement, within a market-competitive package

To attract and retain high-calibre individuals

Contributions may be paid into personal pension arrangements or as a cash supplement (reduced for the impact of employers’ NICs)

Up to 15% of base salary p.a.

This is higher than was set out in the IPO Prospectus – although there are no plans to change pension contributions currently, this higher cap allows for suitable flexibility

Not applicable

Not applicable

Market adjusted allowance

To ensure appropriate weighting of fixed and variable remuneration within an overall market-competitive package

The allowance ensures that the gearing of the overall package remains appropriate

A fixed monthly allowance, typically paid in cash

Paid on the same basis as salary but will not be taken into account for the purposes of:

• incentive pay multiples

• pensions or insured benefits

• shareholding guidelines

• termination or redundancy payments

In order to provide a formal cap, the maximum level of market adjusted allowance will be limited to 50% of base salary p.a. for the duration of this Remuneration Policy. This level is higher than set out in the IPO Prospectus – although there is no current intention to increase the current levels, this ensures that suitable flexibility is retained

Not applicable

Increases in the market adjusted allowance will be awarded at the Remuneration Committee’s discretion, but will only be increased if there is a meaningful change in the appropriate market benchmarks

Market adjusted allowances may be settled in shares or other instruments



Remuneration Report AppendixRemuneration Policy continued

Executive Directors’ variable pay

Element and purpose Policy and operation Maximum Performance measures Committee flexibility

Annual Incentive Plan (‘‘AIP’’)

To motivate Executive Directors and incentivise delivery of performance over a one-year operating cycle, focusing on the short- to medium-term elements of the Group’s strategic aims

A proportion of the annual bonus is deferred, which encourages a longer-term focus and aligns the interests of the Executive Directors with shareholders

A bonus plan which operates annually. Performance measures are set by the Remuneration Committee at the start of the financial year. Performance targets are assessed by the Remuneration Committee following the year-end and the AIP outcome is agreed

At least 40% of the AIP outcome is deferred into shares under the Company’s Deferred Share Plan (“DSP”), whilst at least 60% of the AIP outcome is deferred if total variable remuneration exceeds £500,000 p.a.

The balance is normally paid in cash

The deferred element is typically released in tranches of one-third on the first, second and third anniversaries of the award, subject to continued employment

Shares within the DSP may accrue dividend equivalents which may be settled in cash or shares (and which are excluded from the limit in the next column)

Both the cash and deferred elements of the bonus may be subject to malus and clawback

The maximum level of AIP outcomes is 125% of base salary p.a.

Performance measures applied may be financial or non-financial and corporate, divisional or individual, and in such proportions as the Remuneration Committee considers appropriate

The AIP outcome is determined by assessing each performance measure on the following basis:

• attaining the threshold level of performance produces a nil pay-out

• a sliding scale (not necessarily straight-line)is applied between the threshold and maximum levels, full pay-out being achieved for this latter level

• no more than two-thirds of maximum is payable for on-target performance

The Remuneration Committee must be satisfied that the result was achieved consistent with the Group’s risk appetite

The Remuneration Committee retains discretion to adjust performance measures and targets during the year to take account of events outside of management control which were unforeseen when the measures and targets were originally set

The Remuneration Committee retains a standard power to apply its commercial judgement to adjust the outcome of the AIP for any performance measure (from zero to any cap) should it consider that to be appropriate

The Remuneration Committee reserves the right to further modify the operation of the AIP to comply with developments in regulatory requirements and market practice subject to the overall cap. Operation of the AIP and DSP will not, in the Remuneration Committee’s view, be made less onerous. In particular, the Remuneration Committee may vary the deferral terms and settle awards in cash, shares and other instruments



Performance Share Plan (“PSP”)

To motivate and incentivise delivery of sustained performance over the long term, and to promote alignment with shareholders’ interests

A long-term incentive plan under which awards are made annually as either nil-cost options or conditional awards

Vesting is subject to performance conditions and continued employment over a period of at least three years

After the performance period, awards are subject to a holding period of a further two years

Shares within the PSP may accrue dividend equivalents which may be settled in cash or shares (and which are excluded from the limit in the next column)

Malus and clawback may be applied to PSP awards

The PSP allows for awards over shares with an absolute maximum value of 200% of base salary per financial year

Where awards are not made in a financial year due to regulatory constraints, this limit will be carried forward

Performance measures applied may be financial or non-financial and corporate, divisional or individual, and in such proportions as the Remuneration Committee considers appropriate

Performance periods will not be less than (but may be longer than) three years

No more than 20% of awards vest for attaining the threshold level of performance

The Remuneration Committee must be satisfied that the result was achieved consistent with the Group’s risk appetite

Awards may be settled in cash or other instruments

Once set for an award, performance measures and targets will generally remain unaltered unless events occur which, in the Remuneration Committee’s opinion, make it appropriate to substitute or vary them



Chairman and Non-Executive Director fees

To enable the Company to recruit and retain, at an appropriate cost, Non-Executive Directors with the necessary skills and experience to oversee the delivery of the business strategy

Fees of the Chairman and the Non-Executive Directors are set by the Remuneration Committee and the Board respectively

Fees are structured as:

• basic fee

• additional fees for chairmanship and membership of Board Committees

• additional fees for further responsibilities (e.g. Senior Independent Director)

Fees are reviewed annually. Factors taken into account in the annual review include:

• time commitment

• equivalent benchmarks to those considered for Executive Directors with a particular emphasis on other banks/financial services businesses

The aggregate fees (together with any shares and/or benefits including the reimbursement of travel and other expenses, and an amount to meet any tax liability arising on such expenses) of the Chairman and of Non-Executive Directors will not exceed the limit set out within the Company’s Articles of Association (currently £2,000,000 p.a.)

Not applicable Whilst there is no current intention to do so, the Company reserves the right to:

• pay some or all of the Chairman’s or Non-Executive Directors’ fees in shares or other instruments

• permit the Chairman or Non-Executive Directors to participate in any benefits in kind

• change the basis of paying fees within the constraints of the cap




Recruitment Remuneration Policy – Remuneration Committee discretion

Relocation expensesFor external and internal appointments, certain relocation expenses may be provided and may be paid over more than one financial year. As set out in the Remuneration Policy, this may be up to a maximum of 100% of base salary p.a. (over and above the general policy on payment of benefits).

AIPThe AIP will operate as detailed in the Remuneration Policy (including the maximum award levels).In the year of appointment, at the Remuneration Committee’s discretion, the terms of that year’s AIP and the performance measures will normally be varied to reflect the part year worked. For an internal appointment, any award under the AIP in respect of the individual’s prior role may either continue on its original terms or be adjusted to reflect the new appointment as appropriate.No element of AIP will be guaranteed, unless in the year of joining a guaranteed element is used as part of a buy-out of awards forfeited on leaving the previous employer (see below for further detail).

PSPThe PSP will operate as detailed in the Remuneration Policy (including the maximum award levels).For an internal appointment, in line with the AIP, PSP awards in respect of the individual’s prior role may either continue on its original terms or be adjusted to reflect the new appointment as appropriate.

Buy-out awardsFor external candidates, it may be necessary to make additional awards in connection with the recruitment to buy out awards forfeited by the individual on leaving a previous employer. Although these are not subject to a formal cap, the Group will not pay more than is necessary, in the view of the Remuneration Committee, to fairly compensate for awards forfeited on leaving the previous employer to join the Group and will in all cases seek to deliver any such awards under the terms of the existing AIP and PSP. In some cases however, it may be necessary to make such buy-out awards on different terms to reflect better the structure of the awards being bought out.All buy-outs, whether under the AIP, PSP or otherwise, will take account of the service obligations and performance requirements for any remuneration relinquished by the individual when leaving their previous employer. The Remuneration Committee will seek to make buy-outs subject to what are, in its opinion, comparable requirements in respect of service and performance. However, the Remuneration Committee may choose to relax this requirement in certain cases, for example:• where the service and/or performance requirements are materially completed, or • where such factors are, in the Remuneration Committee’s view, reflected in some other way, such as a significant discount to the

face value of the awards forfeited, or• where necessary to retain compliance with regulatory requirements, such as CRD IV.

Recruitment Remuneration PolicyAppointment of Executive DirectorsThe Remuneration Policy balances the need to have appropriate remuneration levels with the ability to attract high-performing individuals to the organisation. With this in mind, the starting point for the Remuneration Committee in setting a remuneration package for a new Executive Director will be to structure a package in accordance with the Remuneration Policy, based on the individual’s knowledge and experience. Consistent with the DRR Regulations, the caps contained within the Remuneration Policy for fixed pay do not apply to new recruits, although the Remuneration Committee does not currently envisage exceeding these caps in practice.

Notwithstanding the general approach set out above, the Remuneration Committee recognises that, when recruiting externally in particular, it may be necessary to compensate an individual to ensure that they are remunerated effectively. The table below sets out areas where the Remuneration Committee may exercise its discretion in order to achieve this. This may arise in particular in relation to bonus and incentive plans given that variable performance-related pay is widely used in the financial services industry to incentivise senior management.

Appointment of Non-Executive DirectorsA new Non-Executive Director would be recruited on terms in accordance with the approved Remuneration Policy at that time.


Service agreements, payments for loss of office and termination policy Executive DirectorsThe terms under which the Executive Directors are appointed are set out in service agreements with the Company. In line with current market practice, the Executive Directors have rolling service agreements, which may be terminated by the Company or the individual on 12 months’ notice. The date of each Executive Director’s service agreement is 10 March 2015. Copies of the service agreements of the Executive Directors are available for inspection at the Company’s registered office. They will also be available for inspection prior to and during the AGM.

Under the service agreements, the Company may make a payment in lieu of notice to an Executive Director. This will be limited to the amount of base salary and, potentially, other fixed benefits for the notice period and may be paid in instalments. The Director is obliged to seek alternative work during this period and the payments may cease or be reduced if the individual finds an alternative role.

Service agreements may be terminated without notice or payment in lieu of notice under a range of circumstances including gross misconduct, fraud or dishonesty, and negligence and incompetence. The agreements do not contain change of control provisions.

The Remuneration Committee is opposed to rewarding failure and, when considering a termination, takes account of all of the information available to it at the time. This policy applies both to any negotiations linked to notice periods on a termination and any treatments which the Remuneration Committee may choose to apply under the discretions available to it under the terms of the AIP, DSP and PSP. The potential treatments on termination under these plans are summarised below.

Plan “Approved leaver” (e.g. death, injury or disability, redundancy, retirement) or otherwise at the discretion of the Remuneration Committee (including on resignation)

“Unapproved leaver” (e.g. resignation)

Termination by the Company for misconduct

Other exceptional cases (e.g. change of control, winding up of the Company)

Annual Incentive Plan (“AIP”)

Payment of the award is at the discretion of the Remuneration Committee.

Award usually time pro-rated for the period of service and released at the end of the performance period, subject to assessment of performance conditions.

No awards made for the year of leaving.

No awards made for the year of leaving.

Payment of the award is at the discretion of the Remuneration Committee.

Award usually time pro-rated subject to satisfaction of performance conditions, which are assessed over the period to the date of the event.

Deferred Share Plan (“DSP”)

Unvested awards will vest at the original vesting dates.

However, the Remuneration Committee retains discretion to accelerate vesting to the date of cessation.

If leaving before the employment requirement date1 all unvested awards will lapse.

If leaving after the employment requirement date1, unvested awards will vest at the original vesting dates. However, in this case the Remuneration Committee retains discretion to accelerate vesting to the date of cessation.

All unvested awards will lapse.

Awards will normally vest early, but may be exchanged for a new award over shares in the acquiring company in the case of an internal reorganisation.




Performance Share Plan (“PSP”)

If leaving before the employment requirement date2, awards will vest at the original vesting date on a time pro-rated basis for the period of service and subject to performance conditions.

If leaving after the employment requirement date2 but before the end of the holding period, unvested awards will vest at the original vesting dates.

Under both scenarios, the Remuneration Committee retains discretion to accelerate vesting to the date of cessation.

The Remuneration Committee also has discretion to reduce or disapply the time pro-rating.

If leaving before the employment requirement date2 all unvested awards will lapse.

If leaving after the employment requirement date2 but before the end of the holding period, unvested awards will vest at the original vesting dates. However, in this case the Remuneration Committee retains discretion to accelerate vesting to the date of cessation.

All unvested awards will lapse.

Awards will normally vest early, but may be exchanged for a new award over shares in the acquiring company in the case of an internal reorganisation.

The extent to which the award vests will be determined by review of performance conditions and applying time pro-rating.

The Remuneration Committee has discretion to reduce or disapply the time pro-rating.

1 The first, second and third anniversaries of the date of grant (as appropriate). 2 The employment requirement date is the third anniversary of the date of grant.

The Remuneration Committee may also approve payment of amounts in settlement of statutory or contractual claims based on legal advice and may make payment of an amount in respect of legal, tax and outplacement services as it considers appropriate.

Chairman and Non-Executive DirectorsThe Non-Executive Directors (including the Chairman) are appointed pursuant to letters of appointment, which set out the terms of their appointment. The appointment is subject to termination by the Company at any time with three months’ written notice. Directors are requested, but not obliged, to give three months’ notice. The letters do not provide for compensation for loss of office. All Non-Executive Directors are subject to annual re-election by shareholders at the AGM, however should the Director not be re-elected by shareholders their appointment will cease immediately and without compensation.

Copies of the letters of appointment of the Non-Executive Directors are available for inspection at the Company’s registered office. They will also be available for inspection prior to and during the AGM.


The Directors present their report and the financial statements of the Group for the year ended 31 December 2016. As permitted by legislation, some of the matters normally included in the Directors’ Report are included by reference as detailed below.

Where to find further information:

Requirement Detail Section Location

Business review and future developments

Information regarding the business review and future developments, key performance indicators and principal risks are contained within the strategic report.

Strategic report Pages 16 to 30 (business review and future developments)

Page 15 (key performance indicators)

Page 33 (principal risks)

Corporate governance statement

The corporate governance section provides full disclosure of the Group’s corporate governance arrangements. The Group has complied fully with the provisions of the UK Corporate Governance Code 2014 during the year.


Pages 39 to 105

Results The results for the year are set out in the income statement. The profit before taxation for the year ended 31 December 2016 was £128.7m (2015: £94.7m). A full review of the financial performance of the Group is included within the strategic report.

Income statement

Strategic report

Page 148

Pages 1 to 38

Dividend The Directors do not propose to recommend a final dividend in respect of the year ended 31 December 2016.

– –

Financial instruments The Group uses financial instruments to manage certain types of risk, including liquidity and interest rate risk. Details of the objectives and risk management of these instruments are contained in the risk management section.

Risk management

Pages 106 to 139

Post balance sheet events

There have been no material post balance sheet events. – –

Share capital At 31 December 2016, the Company’s share capital comprised 344,739,584 ordinary shares of £0.10 each.

The Company did not repurchase any of the issued ordinary shares during the year or up to the date of this report.

The powers of the Directors, including in relation to the issue or buyback of the Company’s shares, are set out in the Companies Act 2006 and the Company’s Articles of Association. The Directors were granted authority to issue and allot shares at the 2016 AGM. This authority expires at the end of the next AGM or, if earlier, on 30 June 2017. Shareholders will be asked to renew the authority to issue and allot shares at the 2017 AGM.

Note 36 to the consolidated financial statements

Pages 185 to 186



Directors’ Report



Rights and obligations attaching to shares

There are no restrictions on the transfer of the Company’s ordinary shares or on the exercise of the voting rights attached to them, except for:

• where the Company has exercised its right to suspend their voting rights or prohibit their transfer following the omission by their holder or any person interested in them to provide the Company with information requested by it in accordance with Part 22 of the Companies Act 2006; or

• where their holder is precluded from exercising voting rights by the Financial Conduct Authority’s Listing Rules or the City Code on Takeovers and Mergers.

All the Company’s ordinary shares are fully paid and rank equally in all respects and there are no special rights with regard to control of the Company.

Under the Relationship Agreement entered into by the Principal Shareholders, AnaCap Derby Co-Investment (No.1) L.P. has agreed for so long as it holds in excess of 4.99% of the ordinary shares in the Company, that save in limited circumstances, it shall not exercise any voting rights in respect of, or sell or transfer (except for a permitted sale or transfer), any ordinary shares in the Company beneficially owned, directly or indirectly, by it.

– –

Employees share scheme rights

Details of how rights of shares in employee share schemes are exercised when not directly exercisable by employees are provided in Note 37 to the consolidated financial statements.


Page 188

Employees The Group is committed to employment policies, which follow best practice, based on equal opportunities for all employees, irrespective of gender, race, colour, age, disability, sexual orientation or marital or civil partner status. The Group is committed to ensuring that disabled people are afforded equality of opportunity in respect to entering and continuing employment within the Group. This includes all stages from recruitment and selection, terms and conditions of employment, access to training and career development.

Information on employee involvement and engagement can be found in the strategic report.

Strategic report Pages 15 and 37

Directors The names and biographical details of the current Directors who served on the Board and changes to the composition of the Board that have occurred during 2016 and up to the date of this report are provided in the corporate governance section and are incorporated into the Directors’ Report by reference.

Corporate governance – Board of Directors

Pages 42 and 43




Disclosure of information under Listing Rule 9.8.4R

Details of any long-term incentive schemes Note 37 to the consolidated financial statements

Pages 186 to 189

Agreement with the Principal Shareholders Relations with shareholders

Page 59

Contracts of significance Note 41 to the consolidated financial statements

Page 192

Dividend waivers Note 36 to the consolidated financial statements

Page 185 and 186

Appointment and retirement of Directors

The appointment and retirement of the Directors is governed by the Company’s Articles of Association, the UK Corporate Governance Code 2014 and the Companies Act 2006. The Company’s Articles of Association may only be amended by a special resolution passed by shareholders at a general meeting.

In accordance with the the UK Corporate Governance Code 2014, all of the Directors will retire and offer themselves for reappointment or appointment (in the case of Chris Patrick) at the 2017 AGM.

Under the Relationship Agreement, the Principal Shareholders are entitled for such time as they have: (i) an interest of 20% or more in the Company, to appoint two Non-Executive Directors; and (ii) less than a 20% interest but an interest of 10% or more in the Company, to appoint one Non-Executive Director. Such appointments are subject to election/re-election at the AGM.

Corporate governance – election and re-election

Page 52

Directors’ indemnities The Directors who served on the Board during 2016 and up to the date of this report have benefited from qualifying third-party indemnity provisions by virtue of deeds of indemnity entered into by the Directors and the Company. The deeds indemnify the Directors to the maximum extent permitted by law and by the Articles of Association of the Company, in respect of liabilities (and associated costs and expenses) incurred in connection with the performance of their duties as a Director of the Company and any associated company, as defined by Section 256 of the Companies Act 2006.

The Group also maintains Directors’ and Officers’ liability insurance which provides appropriate cover for legal actions brought against its Directors.

– –



Directors’ Reportcontinued



Significant agreements

There are no agreements between any Group company and any of its employees or any Director of any Group company which provide for compensation to be paid to an employee or a Director for termination of employment or for loss of office as a consequence of a takeover of the Company.

There are no significant agreements to which the Company is a party that take effect, alter or terminate upon a change of control following a takeover bid for the Company.

– –

Political donations The Group made no political donations during the year. – –

Research and development activities

The Group does not undertake formal research and development activities. However, new products and services are developed in each of the business lines in the ordinary course of business in accordance with the Group’s product and pricing governance framework. Under this framework, all new products, campaigns and business initiatives are reviewed and approved by the Group’s Product and Pricing Committee. In addition to new products and services, the Group also invests in internally generated intangible assets including computer systems.


Pages 182 and 183

Emissions reporting Details relating to required emissions reporting are set out on page 105.

Directors’ Report Page 105

Going concern The financial statements are prepared on a going concern basis, as the Directors are satisfied that the Group has the resources to continue in business for the foreseeable future (which has been taken as 12 months from the date of approval of the financial statements). In making this assessment, the Directors have considered a wide range of information relating to present and future conditions, including the current state of the balance sheet, future projections of profitability, cash flows and capital resources, and the longer term strategy of the business. The Group’s capital and liquidity plans, including stress tests, have been reviewed by the Directors. The Group’s forecasts and projections show that it will be able to operate at adequate levels of both liquidity and capital for the foreseeable future, including under a range of stressed scenarios. After making due enquiries, the Directors believe that the Group has sufficient resources to continue its activities for the foreseeable future and to continue its expansion, and the Group has sufficient capital to enable it to continue to meet its regulatory capital requirements as set out by the Prudential Regulation Authority.

– –




Disclosure of information to auditors

Each person who is a Director at the date of this Directors’ Report confirms that:

• so far as the Director is aware, there is no relevant audit information of which the Group’s auditors are unaware; and

• he or she has taken all the steps that he or she ought to have taken as a Director to make himself or herself aware of any relevant audit information and to establish that the Group’s auditor is aware of that information. This confirmation is given and should be interpreted in accordance with the provisions of the Companies Act 2006.

– –

Auditor Following a competitive tender process, the Board recommended that Deloitte LLP be appointed as the Group's auditor with effect from the 2017 AGM, at which resolutions concerning Deloitte’s appointment and authorising the Board to set their remuneration will be proposed.

Audit Committee Report

Page 68

Annual General Meeting (AGM)

The AGM will be held at 11.00am on 16 May 2017 at the offices of Linklaters LLP, 1 Silk Street, London, EC2Y 8HQ. The Notice of AGM, together with an explanation of the items of business to be discussed at the meeting, will be posted to shareholders and made available on the Group’s website.

A resolution will be proposed at the 2017 AGM to amend the Company’s Articles of Association so that future AGMs may be held electronically.

Group website www.investors. aldermore.co.uk

Substantial shareholdings

In accordance with the Disclosure and Transparency Rules, the Company (as at the date of this report) has been notified of the following interests in its ordinary share capital:

As at 31 December 2016 As at 1 March 2017

ShareholderOrdinary

shares held% of voting

rightsNature of

holdingOrdinary

shares held% of voting

rightsNature of

holding

AnaCap Financial Partners L.P.1 28,702,806 8.33% Direct 28,702,806 8.33% Direct

AnaCap Financial Partners II, L.P.1 37,964,311 11.01% Direct 37,964,311 11.01% DirectAnaCap Derby Co-Investment (No. 1) L.P.1 38,821,660 11.26% Direct 38,821,660 11.26% DirectAnaCap Derby Co-Investment (No. 2) L.P.1 32,897,211 9.54% Direct 32,897,211 9.54% Direct

Norges Bank 10,333,531 3.00%

Direct (2.97%) and

qualifying financial

instruments (0.03%) 10,358,946 3.00% Direct

Standard Life Investments (Holdings) Limited2 18,656,326 5.41% Indirect 17,696,294 5.13% Indirect1 These shareholdings represent the interests of the Principal Shareholders who hold 40.14% of the ordinary shares in the Company.2 Since 31 December 2016, the Company has been notified that Standard Life Investments (Holdings) Limited decreased its

shareholding on 13 January 2017 to below 5% and increased its shareholding on 27 January 2017 as set out above.



Directors’ Reportcontinued

Emissions reportingGreenhouse gas emissions The Group’s greenhouse gas (“GHG”) emissions for 2016 were 525 tonnes of carbon dioxide equivalent (tCO2e) equating to 0.59 tCO2e per employee. In 2016, the Group established an energy baseline against which it can report in future years.

GHG emissions for the Group have been collated and calculated for all UK operations where the Group is responsible for the combustion of fuel or energy used in the operation of facilities occupied by the Group.

Reporting period The reporting period for emissions corresponds with the Group’s financial reporting period.

GHG scope of disclosure and omissionsGHG emissions disclosure will be limited to Scope 1 and Scope 2 emissions only as data was not readily available for Scope 3 emissions. Scope 1 includes fuel emissions from buildings and company vehicles and Scope 2 includes our emissions from electricity. Disclosure of Scope 3 emissions is voluntary under the regulations.

Heat and electricity supplied by landlords to premises occupied by the Group, where the heat or electricity is not separately reported or charged outside of the general building service charge, has not been included in this year’s report due to lack of data. Methods to obtain this data or reliable methods for estimation will be investigated and if suitably accurate data can be obtained, this will be included in future year’s reports.

GHG data integrity and calculation methodThe data included in this report has been taken from multiple sources, namely: utility billed data, existing internal calculations, existing external calculations from landlords, and expense claims in relation to transport usage. It has not been possible to obtain some data for the reporting period. Where this is the case, data has been estimated either by using data from an earlier period or extrapolating existing data. Fuel consumption from vehicles for business travel was estimated from expense claim costs.

Conversion factors used in this report have been taken from the Department for Business, Energy and Industrial Strategy’s "Greenhouse Gas Conversion Factor Repository" and the report has been compiled in line with the Department for Environment, Food & Rural Affairs’ "Environmental Reporting Guidelines: Including mandatory greenhouse gas emissions reporting guidance".

GHG reduction planThe Group is committed to reducing GHG emissions. The opportunities for energy savings identified through the Group’s ESOS (Energy Saving Opportunity Scheme) assessment, completed in January 2016, are being progressed and implemented as appropriate.

GHG data verificationAll data used for GHG emissions reporting was compiled and calculated by JRP Solutions Ltd, an independent energy specialist.

On behalf of the Board:

Rachel Spencer,Company Secretary

1 March 2017Scope 2015 2016

Scope 1 Company transport 237 175

Scope 2 Electricity 484 350

Total GHG emissions 721 525

Average number of employees 845 887

Total per employee 0.85 0.59

GHG emissions summary (tCO2e)


Documents

Corporate governance - Aldermore · 2017-04-13 · progress with the search and look forward to announcing a replacement in due course. Further information about the search process